Gold Price Forecast: Why XAU/USD appears vulnerable heading into the Fed showdown?

  • Gold price licks its wounds in monthly lows amid firmer US dollar.
  • USD benefits from Fed’s tapering bets, China’s Evergrande story-led risk aversion.
  • Gold’s four-hour chart points to deeper loss amid a potential bear flag

After Thursday’s $50 slide, gold price looked to stabilize on Friday, although held on to multi-week lows near $1750. Sellers took a breather after the previous decline, which was mainly seen as a chart-based sell-off after gold price failed to resist above the $1800 barrier. The slide also ensued after the US Retail Sales surprised to the upside in August, showing signs of strengthening economy and reinforced Fed’s tapering bets. On Friday, gold price attempted a bounce but lacked conviction amid a broadly firmer US dollar. The troubled Chinese property developer giant Evergrande’s potential default story dented the investors’ sentiment and lifted the dollar’s safe-haven appeal while rising Treasury yields on tapering bets also aided the greenback, limiting gold’s upside attempts.  

Heading into a big week, with the Bank of England and the Fed central bank meetings in focus, gold price resumes last week’s downtrend and refreshes monthly lows near $1740 amid Fed’s tapering speculations and as risks surrounding Evergrande build up. The US dollar index holds at monthly tops, as the Fed is likely to announce its tapering plans, starting by the end of this year, at its September 21-22 monetary policy meeting. The BOE may also hint at tapering, given the rising inflation in the UK. A potential withdrawal in the monetary policy stimulus will continue to bode ill for gold price. Later in the day, the dynamics in the US dollar and the broader market sentiment will continue to have a significant bearing on gold trades, as the economic calendar appears scarce. Canada’s Federal election is scheduled later on Monday but its outcome is likely to have little to no impact on gold price.

Gold Price Chart - Technical outlook

Gold: Four-hour chart

As observed on the four-hour chart, gold price has confirmed a bear pennant pattern, considering the recent consolidation that followed the previous week’s slide.

Gold price closed the four-hourly candlestick below the rising trendline support at $1752, charting out the bearish continuation formation.

The death cross validated on the same time frame on Friday, adds credence to the potential downside.

The Relative Strength Index (RSI) is holding in the oversold territory, suggesting a bounce could be in the offing. However, given the bearish technical setup, any recovery attempt could be seen as a good selling opportunity.

A failure to defend the monthly lows of $1742, a fresh leg down could initiate towards the $1700 psychological magnate.

Alternatively, the pattern support now resistance at $1753 could challenge gold’s road to recovery.

Further up, the pattern resistance at $1759 could be the next relevant upside target. A sustained move above the latter could expose the bearish 21-Simple Moving Average (SMA) at $1771.

All in all, the path of least resistance for the gold price appears to the downside.

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