Gold Price Forecast: XAU/USD down but not out whilst 21-day SMA holds

Gold price is trading on the front foot just shy of the $2,500 threshold early Monday, consolidating Friday’s late rebound. Gold price sticks to its familiar range, as traders brace for the US Consumer Price Index (CPI) data due later this week to confirm the size of the Federal Reserve (Fed) interest rate cut next week.

Gold price bides time, underpinned by dovish Fed bets

Gold price clings to the critical short-term daily support level, now at $2,498, finding support from a broadly risk-averse market environment even though the US equity futures rebound in early dealings.

Softer-than-expected China’s inflation data raise demand concerns in the world’s top consumer, fuelling speculations that Chinese authorities could roll out more stimulus measures to stimulate economic prospects, supporting the non-yielding Gold price. China’s inflation rate grew 0.6% in August over the year, lower than the 0.7% expected. Every month, the CPI rose 0.4%, lower than the 0.5% expected.

 Increased bets for an outsized Fed rate cut this month help maintain the bullish outlook for Gold price from a wider perspective. However, the further recovery in Gold price could be capped, as the US Treasury bond yields see a modest uptick, courtesy of the improvement in the US stock futures, providing fresh legs to the US Dollar (USD) turnaround.

The USD staged a late recovery on Friday after hitting a fresh eight-day low against its major rivals, in an immediate reaction to the disappointing US labor market report. US Nonfarm Payrolls rose by 142,000 missing a 160,000 gain estimated. On the other hand, the unemployment rate edged down to 4.2%, in line with expectations.

Discouraging US employment data rekindled worries about a possible economic downturn, smashing risk assets such as Wall Street indices. The sell-off in US stocks sparked the haven demand for the Greenback, allowing it to stage a late comeback.

The risk-off sentiment fuelled demand for the US government bonds, weighing heavily on US Treasury bond yields on Friday, helping cushion the downside in Gold price.  

Looking ahead, Gold price could extend its range play until Wednesday, when the US inflation data will be published. The data is likely to ramp u volatility around the US Dollar and, in turn, the Gold price. US inflation data will be key to gauging the magnitude of the upcoming Fed rate cut.

Gold price technical analysis: Daily chart

Heading into the new week, the short-term technical outlook continues to remain constructive so long as Gold price holds above the 21-day Simple Moving Average (SMA), now at $2,498.

The 14-day Relative Strength Index (RSI) also rebounds while above the 50 level, adding credence to the bullish potential in Gold price.

Recapturing the $2,500 level on a daily closing basis is critical for Gold price to strengthen its bullish bias. The next relevant topside barrier is seen at the record high of $2,532, above which the $2,550 psychological level will come into play.

If Gold price faces rejection once again near the $2,530 supply zone, the correction would require a daily closing below the 21-day SMA at $2,498. A breach of the latter will challenge the previous week’s low of $2,472.

Further down, sellers will need to crack the symmetrical triangle resistance-turned-support at $2,459 to initiate a sustained downtrend.