Gold Price Forecast: XAU/USD rebounds towards key $1795 barrier but downside risks remain intact

  • Gold price rebounds from critical 21-DMA amid falling USD, yields.
  • Bullish potential appears limited in gold due to impending bear cross.
  • Lack of first-tier data to leave gold at the mercy of the dynamics in yield, USD.

Gold price extended Friday’s sell-off on Monday to test the $1760 level but managed to recover some ground to settle the day around $1765. The additional weakness in gold price came on the back of the extended rally in the US Treasury yields across the curve, as investors continued to cheer the upside surprise on the American Retail Sales report, which further fuelled the bets for the Fed’s tapering as early as the next month. The uptick in yields boosted the greenback while the US currency also drew support from the disappointing Chinese Q3 GDP-induced risk-off market profile. Additionally, the hawkish signals from the Bank of England (BOE) also exacerbated the pain in the non-interest-bearing gold.

However, the risk sentiment improved in the US last session after the techs stocks jumped on the prospects of stronger corporate earnings reports. The upbeat tone on Wall Street capped the dollar’s advance and put a floor under gold price.

Gold price has staged a solid comeback in Tuesday’s trading so far, extending the previous bounce, as the US dollar drops sharply across the board. The risk-on mood has extended into the Asian trading, prompting the greenback to resume its downside correction from multi-year tops. Further, Tuesday’s downbeat US Industrial Production data re-ignited the concerns over the economic recovery, benefiting the non-yielding gold price at the expense of the Treasury yields. Gold price also finds support from the increase in demand for the bright metal from India, as the festival season kicks in. Gold imports jumped to about $24 billion during April-September 2021 due to higher demand in the country, the Indian Commerce Ministry reported on Monday.

In the day ahead, the broader market sentiment and the yields’ price action will be closely watched for placing fresh bets on gold price. Investors also look forward to speeches from the ECB and Fed officials amid a light economic calendar.

Gold Price Chart - Technical outlook

Gold: Daily chart

Gold price managed to defend the critical rising trendline support at $1765, despite a brief dip below it, as the bulls found fresh bids at the horizontal 21-Daily Moving Average (DMA) at $1760.

On the road to recovery this Tuesday, gold price is likely to face immediate resistance at the horizontal 50-DMA at $1778. A sustained move above the latter could call for a retest of the 100 and 200-DMAs confluence zone at $1795.

The 14-day Relative Strength Index (RSI) is edging higher above the midline, supporting the renewed upside in the price.

However, an impending bear cross, with the 100-DMA set to cut the 200-DMA from above, warrants caution for gold bulls.

Therefore, if the 21-DMA support gives way convincingly, then the previous week’s demand area at $1750-$1745 would be back into play. Further south, the multi-week lows of $1722 could be on the sellers’ radars.

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