Gold Price Forecast: XAU/USD to remain volatile within range amid hawkish Fed, Evergrande crisis

Gold price stalls hawkish Fed-led declines amid worsening mood.
US dollar falls in tandem with Treasury yields as Evergrande fears re-emerge.
Gold price could remain volatile in a familiar range between $1745-$1795.

Dhwani Mehta FXStreet

Gold price snapped its three-day recovery momentum and returned to the red on Wednesday, hurt by the US Federal Reserve’s (Fed) hawkish surprise and the renewed optimism over China Evergrande repayment story. In the early part of the day, gold remained in a consolidative mode in familiar ranges around $1775, in a typical pre-Fed caution trading. Heading close to the Fed decision, gold price spiked to four-day highs of $1787 after the US dollar retreated on improving risk-on mood. Investors cheered the news that Evergrande's main Unit Hengda Real Estate Group will make a coupon payment for onshore bond due September 23.

However, gold price took a big hit as sellers returned on a hawkish turn from Fed Chair Jerome Powell. The Fed left the monetary policy setting unadjusted but announced that the tapering could start ‘soon’ and end around mid-2022, signaling that the rate hike could be sooner than expected. Powell further played down the risk of contagion from the Evergrande crisis. The US dollar firmed alongside the Treasury yields, knocking off gold price back to the $1765 region.

This Thursday, gold price is looking to extend post-Fed decline, although the bears lack follow-through amid worsening market mood. China Evergrande repayment risks continue to loom and dent the investors’ sentiment, limiting the downside in the safe-haven gold. Despite the upbeat comments from the Chairman of the indebted Evergrande group, investors remain cautious amid an impending payment on the USD83 million offshore coupon. However, the company still has a 30-day grace period before this is registered as a default. The return of risk-off flows has dragged the Treasury yields lower, with the US dollar also feeling the pull of gravity. Markets also digest the progress made on the US $3.5 trillion spending bill.

Looking ahead, China Evergrande story will continue to remain the main market driver, with the Fed’s hawkish stance seen playing a second fiddle. The Euro area and the US Manufacturing and Services PMIs will be also eyed for fresh take on the global economic recovery. Should the risk-aversion deepen on the re-emergence of Evergrande fears, gold price could likely see the extension of the rebound in gold price.

Gold Price Chart - Technical outlook

Gold: Daily chart

After Wednesday’s two-way businesses witnessed in gold price, the volatile trading is likely to continue on Tuesday.

Gold bulls will need to defend the rising trendline support, connecting the September 8 and 20 lows, at $1748.

Meanwhile, the confluence of the 21 and 50-Daily Moving Averages (DMA) at $1793 is likely to offer stiff resistance should the post-Fed recovery gain momentum.

However, with the 14-day Relative Strength Index (RSI) edging lower below the midline, risks appear skewed to the downside.

A breach of the abovementioned support would expose the six-week lows of $1742.

On the upside, daily closing above the critical $1793 barrier is needed to unleash the recovery gains towards the mildly bearish 200-DMA at $1806.

The next relevant resistance is aligned at the horizontal 100-DMA pf $1815.

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 sticks to positive bias above 0.7100; lacks bullish conviction

AUD/USD trades with a positive bias for the second straight day, holding above 0.7100 in the Asian session on Friday as softer US bond yields keep US Dollar bulls on the back foot. Furthermore, hawkish RBA Governor Bullock's comments boost rate hike bets and support the Aussie. However, the Fed's hawkish outlook, along with geopolitical uncertainties, limits USD losses and caps the pair.

USD/JPY approaches 158.00 as Japanese Yen resumes decline

USD/JPY is resuming its upside in the European session on Friday, refreshing two-week highs and nearing 158.00. The Japanese Yen extends losses, despite the Bank of Japan's (BoJ) expected rate hike to 1.25% and hawkish Governor Ueda's comments, as two surprise dissents against the rate hike weigh on it.

Gold: Upside remains capped by $4,400

Gold adds to the optimism seen in the second half of the week, trading with decent gains around the $4,370 region per troy ounce on Friday. The yellow metal’s advance finds traction in declining crude oil prices, and manages to offset the continuation of the move higher in the US Dollar and rising US Treasury yields across the curve.

Why altcoin season isn't coming back — and what stole its capital

If, after two years of being frozen in ice, Katara and Sokka woke you up to the crypto market, it would seem like 100 years have passed. With Bitcoin soaring to record highs just over a year ago, everyone expected a routine altcoin season, where investors take profits from the top crypto to chase higher returns in altcoins.

BoJ Recap: Not as hawkish as expected

The BoJ raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks. Governor Kazuo Ueda said the policy phase had changed.

BoJ Recap: Not as hawkish as expected

The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.