Gold Price Forecast: XAU/USD downside risks intact towards $1,677, NFP holds the key

Gold price is looking to extend the rebound from six-week lows of $1,689 this Friday, as the US dollar bulls take a breather after a sharp rally seen a day before. Investors resort to positions readjustment ahead of the all-important US Nonfarm Payrolls (NFP) data release, which could cement a 75 bps Fed rate hike for September. Markets are currently pricing a 74% chance of an outsized rate hike later this month.

The dollar continues to capitalize on hawkish Fed rate hike expectations-led surging Treasury yields and persistent risk-off flows so far this week. Risk-aversion remains the central theme, as markets fret higher borrowing costs for longer, in a scenario where global growth is likely to suffer, especially in light of the fresh covid lockdowns in China. On Thursday, the Chinese metropolis of Chengdu announced a city-wide lockdown, confining 21 million residents to their homes as the country doubles down on its zero-Covid policy. Accentuating the risk-off market environment, the ECB is also seen hiking rates by 75bps next week, with odds standing roughly around 80%.

Also read: Gold Price Forecast: XAU/USD braces for 2021 low of $1,677 in a volatile week – Confluence Detector

At the moment, gold bears are taking a pause, allowing a brief pullback in the metal before contemplating the next move. The bullion’s fate now hinges on the upcoming US payrolls release, which will see a 300K jobs addition to the economy in August compared to a blockbuster 528K reported previously. The way markets are positioned, it appears that only a big negative surprise will dissuade the Fed from going all out on a super-sized rate hike to tame inflation. However, the dollar will likely remain in a win-win position irrespective of the outcome of the US jobs.

Gold price technical outlook: Daily chart

The short-term technical outlook for gold remains bearish, as sellers keep their sight on the 2022 low of $1,681.

Should the downside accelerate, a test of the 2021 low of $1,677 will be inevitable. The 14-day Relative Strength Index (RSI) still holds just above the oversold region, indicating more pain ahead.

Further, the 21-Daily Moving Average (DMA) is set to cut the 50 DMA from above, which if confirmed on a daily closing basis will represent a bear cross. The bearish crossover will add credence to the ongoing losing streak in the metal.

On the flip side, bulls will meet initial resistance at the previous day’s high of $1,711, above which the $1,720 round number could come into play.

The July 22 low of $1,728 could challenge bearish commitments on the road to recovery.