Gold Price Forecast: XAU/USD set to retest multi-month highs, bullish potential appears limited

Gold price (XAU/USD) corrected sharply from four-month highs of $1913 to test the key support at $1891 on Wednesday. The pullback in gold prices was mainly driven by a rebound in the US dollar and Treasury yields, as the Fed’s tapering talks hit the headlines once again. The 10-year US rates jumped towards 1.60% after the Fed’s Vice Chair for Supervision Randal Quarles and Vice Chair Richard Clarida said that the central bank could begin tapering talks at upcoming policy meetings. Additionally, month-end fx readjustments also led to the inflows in the greenback, dragging gold price lower. A quiet positive rally in Wall Street also added to the weight on gold price.

Gold price has caught a fresh bid wave heading into Thursday’s European session. Bulls look recapture $1900, courtesy of the recovery in the risk sentiment that weighs on the safe-haven dollar. Renewed US-China trade optimism has lifted the market mood. Both sides officially confirmed that the US Trade Representative Katherine Tai and China’s Vice-Premier Liu He had candid and constructive trade talks. Meanwhile, gold remains supported amid the continued surge in covid cases in Asia and fresh lockdown in the Australian state of Victoria. Markets now shift their focus towards a fresh batch of US data due for release later on Thursday, with the Durable Good and Core PCE closely eyed. In the meantime, the narrative on the inflation risks and tapering bets will continue to impact gold price.

Gold Price Chart - Technical outlook

Gold: Four-hour chart

On the four-hour, gold price remains on track to retest the multi-month highs above $1900 so long as the 21-simple moving average (SMA) at $1891 holds.

The Relative Strength Index (RSI) edges higher while above the midline, keeping the buyers hopeful.

A break above Wednesday’s high would expose the January high of $1918.

However, a four-hourly closing below the critical 21-SMA support could trigger a drop towards the ascending 50-SMA at $1879.