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.

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