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Gold Price Forecast: XAU/USD bulls have the upper hand, sustained move beyond $1,800 awaited

  • Gold attempted modest intraday recovery on Thursday amid sustained USD selling bias.
  • Hawkish remarks by Fed officials, surging US bond yields kept a lid on any further gains.
  • Recession fears weigh on investors’ sentiment and offer support to the safe-haven metal.

Gold bounced from the $1,783-$1,784 area on Thursday and stalled the previous day's retracement slide from a multi-week high, though lacked follow-through. Signs of easing inflationary pressures in the US dragged the US dollar to its lowest level since late June, which, in turn, offered some support to the dollar-denominated commodity. The US CPI report released on Wednesday showed that consumer prices were unchanged in July. Furthermore, data on Thursday revealed that the US Producer Price Index fell in July for the first time in more than two years, suggesting that inflation may have peaked. This, in turn, forced investors to trim their bets for a 75 Fed rate hike move at the September policy meeting and continued exerting pressure on the greenback.

That said, the recent hawkish comments from Fed officials suggested that the US central bank remains on track to tighten its monetary policy further. San Francisco Fed President Mary Daly said that a 50 bps interest rate hike in September makes sense, though she is open to a bigger rate hike if data warrants. Earlier this week, St. Louis Fed President James Bullard, Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari also backed the case for additional rate hikes. This led to a sharp spike in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond shot to its highest level in three weeks, which helped limit any further losses for the buck and capped gains for the non-yielding gold.

The XAU/USD faced rejection near the $1,800 round-figure mark, though the downside remains cushioned amid the prevalent cautious mood. Against the backdrop of worries about a global economic downturn, US-China tensions over Taiwan and uncertainty over future interest rates kept investors on the edge. This was evident from the overnight pullback on Wall Street and a generally softer tone around the Asian equity markets on Friday. The anti-risk flow assisted the safe-haven gold to edge higher during the Asian session. The uptick, however, lacks bullish conviction and warrants caution before positioning for any further gains. Traders now look forward to the Preliminary Michigan US Consumer Sentiment Index for a fresh impetus.

Technical Outlook

From a technical perspective, gold, so far, has struggled to find acceptance above the $1,800 mark. That said, the pullback remains shallow and the two-way price action witnessed since the early part of the week could be categorized as a consolidation phase. Given the recent strong rebound from a 16-month low touched in July, the set-up still seems tilted in favour of bullish traders.

 The constructive outlook is reinforced by bullish oscillators on the daily chart, which are still far from being in the overbought territory. Hence, a subsequent move beyond the $1,800 mark, towards testing the post-US CPI swing high near the $1,808 region, remains a distinct possibility. Some follow-through buying would set the stage for a rise towards the next relevant hurdle near the $1,824-$1,825 region.

On the flip side, any meaningful slide now seems to find decent support near the $1,774 area. Sustained weakness below would expose the $1,754-$1,752 strong resistance breakpoint, now turned support, which should now act as a key pivotal point. A convincing breakthrough would shift the bias in favour of bearish traders and drag gold towards the $1,728 intermediate support en route to the $1,715 zone.

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Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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