Gold Price Forecast: XAU/USD eyes a daily close below 21 DMA for further downside

Gold price is fading the early bounce this Thursday, as the US dollar is seeing renewed buying interest amid the extension of risk-off flows. Dire Chinese economic outlook combined with Fed’s caution on a potential downturn keep investors on the edge. Amidst flight to safety-driven demand for the US government bonds, the Treasury yields reverse the previous gains, which helped pause the ongoing sell-off in the bright metal. Gold bulls also draw support from a likely escalation of the US-China conflict, as America is set to initiate formal trade talks with Taiwan in early autumn.

However, the downside risks remain intact for the bullion should risk-aversion deepen and trigger another leg higher in the dollar against its major rivals. Traders will also take cues from the US weekly jobless claims and Philly Fed Manufacturing Index data for fresh signs on the health of the economy. Speeches from Fed officials Esther George and Neil Kashkari will be closely eyed for fresh trading opportunities in the USD-priced gold. According to the CME Group’s FedWatch tool, the odds of a 50 bps September rate hike have jacked up to 62%.

Also read: Gold Price Forecast: XAU/USD keeps bearish potential intact towards $1,750  – Confluence Detector

XAU/USD stretched its losing streak into a third day on Wednesday and reached the lowest level in two weeks at $1,760 amid the extended recovery in the US dollar, as well as, the Treasury yields. The Fed July meeting minutes sensed caution amongst the policymakers, as they agreed last month on the need to eventually slow down on the pace of interest-rate hikes, acknowledging the mounting risks to growth. Despite the less hawkish Fed minutes, gold price failed to capitalize, as the losses in Wall Street indices kept the safe-haven demand for the greenback underpinned. Investors also digested the US Retail Sales data, which showed a flat reading last month followed by a downwardly revised 0.8% increase in June.

Gold price technical outlook: Daily chart

The downslide following the rising wedge breakdown on the daily chart challenged the bullish 21-Daily Moving Average (DMA) support on Wednesday.

In Thursday’s trading so far, the price has breached the 21 DMA, now at $1,764, eyeing deeper declines.

The 14-day Relative Strength Index (RSI) has pierced through the midline for the downside, suggesting that the path of least resistance is south.

The immediate cushion is placed at the August 3 low of $1,754, below which the $1,750 psychological level will be tested.

On the other hand, recapturing 21 DMA will be critical for bulls to hold ground. The next significant hurdle for buyers is aligned at the bearish 50 DMA at $1,777.

Further, the wedge support-turned-resistance at $1,789 will come into play for the recovery to extend towards the $1,800 threshold.