Gold Price Forecast: XAU/USD remains exposed to downside risks ahead of a big week

Gold price looks vulnerable as Fed’s tapering bets remain unfazed by poor NFP.
Elevated US yields amid rising inflation expectations, soaring energy costs weigh on gold.
Gold price keeps $1725 in sight while below critical 21-DMA resistance.

Dhwani Mehta FXStreet

Gold price defied the bearish odds and witnessed a wild ride, maintaining mild gains above $1750 on Friday while ending the week marginally lower. Gold price wavered in a familiar range between $1760-$1750 almost during the first half of the trading day before exploding to two-week highs of $1781. The buying resurgence came in after the US Nonfarm Payrolls rose by 194K in September, missing the market expectation of 500K by a big margin.

However, sellers quickly fought back control and knocked gold price back towards the lower levels, as the dismal NFP failed to temper the Fed’s tapering expectations. Markets believed that rising wage pressures will exacerbate inflation further, which could lead the Fed to pare back bond-buying as early as the next month. The NFP disappointment roiled the sentiment on Wall Street, helping put a floor under gold price.

Starting out a fresh week on Monday, gold price is fluctuating between gains and losses, trading on the back foot, as the market sentiment worsens and lifts the US dollar’s safe-haven demand. Persisting Fed’s tapering calls and surging energy prices-led higher inflation expectations continue to keep the Treasury yields elevated, aiding the greenback’s rebound. Despite the latest leg down, gold price manages to draw support from the renewed US-China tensions over Taiwan and phase one trade deal.

Looking ahead, the Fed tapering speculations and energy crisis will continue to dominate the market sentiment amid holiday-thinned light trading conditions, as the US and Canada are closed in observance of their respective national holiday. Investors await Wednesday’s US inflation data and the FOMC minutes for a decisive move in gold price.

Gold Price Chart - Technical outlook

Gold: Daily chart

Gold’s daily chart shows that the price failed to find acceptance above the short-term critical resistance of the 21-Daily Moving Average (DMA) at $1762 on Friday, leaving the downside risks exposed.

The 14-day Relative Strength Index (RSI) trades flatlined but below the midline, suggesting the bearish grip on gold price remains intact.

On a daily closing below the $1750-$1745 demand area, the multi-week troughs near $1720 could be on the gold sellers’ radars.

Alternatively, a firm break above the 21-DMA barrier is critical to initiate a convincing uptrend in gold price.

The downward-sloping 50-DMA at $1778 will be back in play, above which a test of the $1800 round number will be inevitable. Near that level, the crucial 200-DMA emerges.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

AUD/USD bulls regain control above 0.6950 amid USD retreat

AUD/USD regains traction and extends the previous day's bounce from the weekly low, aiming for 0.7000 in Asia on Friday. The overnight pullback in US bond yields keeps the US Dollar below an 18-month high, which in turn offers some support to the pair. Meanwhile, hawkish RBA expectations also keep the major underpinned.

USD/JPY holds gains near 158.00 after Japan's weak Household Spending data

USD/JPY clings to gains around 158.00 after data showed on Friday that Japan's Household Spending fell for the ninth straight month, undermining the Japanese Yen. Meanwhile, the US Dollar remains depressed as the overnight fall in US bond yields counters a hawkish Fed and geopolitical uncertainties, could cap any downside in the pair.

Gold remains range-bound below $4,200

Gold has given up some ground after an initial bullish attempt to reach weekly highs, returning to below the $4,200 mark per troy ounce on Friday. The US Dollar’s strong upside momentum, combined with rising US Treasury yields across the curve, seems to keep further gains in the yellow metal under scrutiny.

Week ahead: US CPI, France’s budget crisis and Q3 earnings to set the market tone

The US dollar held relatively strong this week, despite the disappointing US jobs report on October 2, which further decreased the probability of a back-to-back rate hike by the Fed at the upcoming gathering on October 28.

CFTC Report: Euro and Aussie shorts expand amid diverging signals

The week in one sentence: Euro and Australian Dollar shorts deepened in the week to October 6, while Yen longs rebuilt. In addition, Coffee buying continued, and Gold exposure remained elevated despite another price decline. Speculators turned more negative on the Euro, increasing the net exposure to around 99.3K contracts.

Has Bitcoin really escaped the macro forces it was built to fight?

Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?