Gold Price Forecast: XAU/USD needs validation from 100 DMA on the road to recovery

Gold price is attempting a modest pullback from two-week lows of $1,943 reached on Thursday, heading towards its biggest weekly decline in five. The United States Dollar (USD) is clinging to recovery gains ahead of yet another high-impact US data, in the PCE inflation.

Eyes on end-of-the-week flows and US PCE inflation data

Another day of intense volatility following the US Federal Reserve (Fed) policy announcements, fuelled massive US Dollar buying and smashed Gold price down to its lowest level in two weeks. Gold price witnessed a sudden pullback from a five-day high of $1,982 and lost nearly $40 before settling Thursday below the $1,950 psychological mark.

Despite a dovish European Central Bank (ECB) interest rate hike, Gold price failed to capitalize, as the US Dollar resurgence was the key underlying theme in American trading on Thursday. The ECB hiked the policy rates by the expected 25 basis points (bps) but President Christine Lagarde outrightly dismissed expectations of additional tightening, noting that "do we have more ground to cover? At this point I wouldn't say so."  The Euro tumbled nearly 1% against the US Dollar, adding to the strong economic data-led upswing in the Greenback.

The United States economy surprisingly accelerated to a 2.4% annual growth rate in the June quarter vs. 1.8% expected and a 2% growth recorded in the first quarter. According to the US Department of Commerce, in seasonally adjusted term Durable Goods Orders jumped 4.7% on a monthly basis to reach $302.5bn. Meanwhile, the latest data published by the US Department of Labor (DOL) showed that Initial Jobless Claims decreased by 7,000 to 221,000 in the week ending July 22.

Impressive US growth and jobs data added credence to signs of resilience in the world’s largest economy, reviving the hawkish Fed expectations. On Wednesday, the US central bank hiked the rates by 25 bps, as expected but Fed Chair Jerome Powell refrained from providing any forward guidance, emphasizing on a ‘data-dependent’ and ‘meeting-by-meeting’ approach. The dovish Fed rate hike triggered a sharp sell-off in the US Dollar alongside the US Treasury bond yields, allowing Gold buyers to test offers above the $1,970 mark.

In Friday’s trading so far, Gold price is seeing a decent bounce, despite the extreme volatility seen around the USD/JPY pair. The Bank of Japan (BoJ) maintained its ultra-loose monetary policy settings but showed openness to guide the yield curve control (YCC) policy with more flexibility. USD/JPY swung higher to test 141.00 before reversing nearly 200 pips to near 138.00, as investors assessed the subtle changes to the YCC policy guidance.

The US Dollar, however, kept its upside consolidation phase intact, awaiting the Fed’s preferred inflation gauge, the United States PCE inflation data, for a fresh trading impetus. Gold price could change its course and challenge two-week lows in case the US PCE inflation comes in hot and adds to the renewed hawkish Fed bets while providing extra legs to the latest upside in the US Dollar. Further, the end-of-the-week flows could also play a pivotal role, as traders take profits on their USD positions after the Fed event and ahead of next week’s US Nonfarm Payrolls release.

Gold price technical analysis: Daily chart

As observed on the daily chart, Gold price has found support at the crossover of the 21 and 50-Daily Moving Averages (DMA) of $1,947.

A Bull Cross is in the making and Gold buyers need confirmation of the same on a daily closing basis to extend the rebound.

On the upside, immediate resistance is seen at the $1,960 round figure, above which the mildly bullish 100 DMA at $1,967 will be tested.

Acceptance above the latter is critical for Gold price to see a meaningful upswing toward Thursday’s high of $1,982.

The 14-day Relative Strength Index (RSI) has recaptured the midline, reviving the bullish potential in Gold price.

On the flip side, immediate support awaits at the abovementioned confluence zone of $1,947, below which a drop toward the $1,940 round figure cannot be ruled.

Further south, Gold sellers could challenge the July 11 low of $1,924.