Gold Price Forecast: XAU/USD’s battle with 50 DMA extends ahead of Fed minutes

• Gold price rebounds from weekly lows as the USD resumes correction.
• US Treasury yields are struggling to find demand ahead of the Fed minutes.
• XAU/USD needs acceptance above 50 DMA to sustain the recovery.  

Gold price is advancing for the first time so far this week, as bulls are trying their luck heading into the Fed minutes showdown. Investors remain cautiously optimistic amid strong US economic data and hopes for Chinese stimulus, reducing the US dollar’s appeal as a safe-haven asset. China’s Premier Li Keqiang asked local officials from six key provinces that account for 40% of the economy to bolster pro-growth measures. The greenback is under renewed selling pressure, extending the previous sell-off from three-week highs amid pre-Fed minutes repositioning. Meanwhile, riskier currencies such as the aussie, the pound and the kiwi dollar are continuing with their recovery, as investors digest the latest hawkish stance by the RBNZ.

However, it remains to be seen whether the renewed upside in XAU/USD price will sustain, as all eyes turn towards the US Retail Sales and FOMC July meeting minutes. “The minutes will likely confirm the Fed remains on track on its aggressive tightening path to tame inflation, although hints on the size of the future rate increases will hold the key for the continuation of the recent uptrend in the US dollar, which will potentially have a significant impact on the bright metal.

Also read: FOMC July Minutes Preview: Can it influence September Fed rate hike expectations?

On Tuesday, XAU/USD incurred mild losses and hit the lowest level in one week at $1,772 even as the US dollar corrected sharply amid a positive shift in the risk sentiment. Stocks rose in the US following robust earnings, industrial production and building permits data. The boost to sentiment helped the US Treasury yields recover, weighing negatively on the non-yielding gold price. The renewed optimism surrounding the health of the American economy lifted the odds of a 75 bps September rate hike to around 43% vs. around 38% seen previously.

Gold price technical outlook: Daily chart

Technically, gold price is looking to recover ground once again above the bearish 50-Daily Moving Average (DMA), now at $1,779.

A sustained break above the latter is needed to revive a recovery towards the $1,800 threshold. The monthly high of $1,808 will then appear on buyers’ radars.

The 14-day Relative Strength Index (RSI) is inching slightly higher above the midline, justifying the latest upswing in the metal.

On the flip side, failure to find acceptance above the 50 DMA barrier will kickstart a fresh downtrend towards the upward-pointing 21 DMA at $1,762.

Ahead of that sellers will challenge the $1,770 round figure once again. Should the selling pressure accelerate, a test of the August 3 low of $1,754 will be on the table.