Gold Price Forecast: XAU/USD yields a falling channel breakout, what’s next?

Gold price is back in the red this Monday at the start of the week after bulls ran into stiff resistance near the $1,730 region on Friday. The bright metal is failing to capitalize on a broad-based US dollar weakness amid a renewed uptick in the Treasury yields and calls for aggressive ECB tightening in the coming months. Citing five sources close to the matter, Reuters reported that “many (ECB) policymakers saw a growing probability that they will need to take the rate into "restrictive territory". Meanwhile, a 75 bps September Fed rate hike is a done deal, with money market pricing an 88% chance. Therefore, hawkish ECB and Fed rate expectations exert downside pressure on the non-interest-bearing bullion.

The precious metal also ignores the mixed market mood, in the face of the renewed US-China trade woes and a covid resurgence in Beijing, as bulls sense caution ahead of Tuesday’s US inflation data. The US annualized Consumer Price Index (CPI) is seen easing sharply to 8.1% in August vs. 8.5% booked in July. The softening price pressure in the US could confirm peak inflation, prompting the Fed to slow down on its pace of tightening. The data could have a major impact on the market pricing of this month’s Fed rate hike, eventually influencing the gold price action.

Also read: Gold Price Forecast: XAU/USD bulls eye a 61.8% golden ratio daily target

XAU/USD snapped a three-week downtrend and ended the week modestly in the green, benefiting from an extended correction in the US dollar from a 20-year peak. Profit-taking and position readjustment ahead of Tuesday’s critical inflation data from the US fuelled the sharp downside in the greenback. Additionally, a swift recovery in the US Treasury yields amid a better mood on Wall Street aided the yellow metal at the dollar's expense.

Gold price technical outlook: Daily chart

Gold price broke above the falling trendline resistance at $1,712 on a daily closing basis and validated a falling channel breakout.

The recovery from six-week lows could regain traction on a sustained move above the $1,720 round number, above which the $1,730-$1,734 supply zone could come into play.

The area is the confluence of the recent range highs and the bearish 21-Daily Moving Average (DMA). Further up, the 50-DMA at $1,742 will be a tough nut to crack for bulls.

With the bear cross still in play and the 14-day Relative Strength Index (RSI) lurking below the midline, bears try their luck again.

On the downside, the channel resistance-turned-support at $1,708 could likely limit the decline. The next cushion is seen at the $1,700 threshold, below which the rising trendline support of $1,695 will be challenged.