Gold Price Forecast: XAU/USD returns to familiar range after Powell-led wild ride

Gold (XAU/USD) witnessed wild swings of around $65 in a matter of an hour on Thursday after the Federal Reserve (Fed) Chair Jerome Powell unleashed a new framework to tolerate inflation rising above 2% for short periods of time to ensure economic recovery and job creation. In a knee-jerk reaction, the US dollar was dumped across the board that drove gold to the highest in six-days at $1976.

However, the greenback quickly reversed the drop and jumped in tandem with the longer-term US Treasury yields, downing Gold as low as $1910. The US benchmark 10-year Treasury yields rallied 10 basis points on the Fed event, now trading at the highest level since mid-July at 0.780%. Meanwhile, the US long-term inflation expectations hit a 7-month high. Markets ignored the mixed US Jobless Claims and Q2 GDP data. The bright metal, however, managed to recover some ground to close the day near the $1930 region.

The Asian stocks trade with mild optimism on Friday, tracking the positive close on Wallstreet, as investors cheer Fed’s new strategy that implies lower interest rates for a longer period. From a broader perspective, the yieldless gold is likely to remain underpinned by lower rates. However, Powell induced rebound in the Treasury yields could keep gold’s upside limited in the near-term. The relentless rally in the US rates could fuel a recovery in the US dollar in the day ahead, as attention now turns towards the US Core PCE Price Index and Michigan Consumer Sentiment Index.

Gold: Hourly chart

Short-term technical perspective  

Looking at the hourly chart, Gold has pierced above the critical resistance at $1934/35 zone, which is the confluence of the horizontal 50 and 100-hourly Simple Moving Averages (HMA) and bearish 21-HMA.

The hourly Relative Strength Index (RSI) is trading flat just above the midline, still supportive of the further upside.

Therefore, the bulls now look to retest the psychological $1950 barrier, where the horizontal 200-HMA coincides.

A breakthrough the latter could call for a retest of Thursday’s high at $1976.

To the downside, should the $1934 level give way, a sharp decline towards the rising trendline support at $1914 cannot be ruled. Below which, Wednesday low of $1903 could be tested.

Gold: Additional levels to consider