Gold Price Forecast: XAU/USD’s path of least resistance appears down

Gold (XAU/USD) extends its downward spiral into the second straight day on Friday, although remains on track to book a weekly gain. The broad-based US dollar rebound amid a pullback in the US Treasury yields and risk-aversion continues to exert bearish pressure on gold. The market mood remains tepid after US President Joe Biden warned a group of senators that China will “eat our lunch” if America doesn’t “step up” its infrastructure spending. He warned a day after his first phone call with Chinese President Xi Jinping.

Also, negatively affecting the risk tone is the lack of fresh developments on the massive US stimulus front, which adds to the downside in the inflation-hedge gold. Markets are resorting to taking profits off the table on their US dollar short positions after the recent slide while gold’s rejection above the $1850 level also warrant caution for the bullish buyers. Meanwhile, the surge in the platinum group metals (PGM), in the wake of the expectations of swifter economic recovery from the coronavirus pandemic-led downturn, diminishes gold’s attractiveness as an alternative store of value. The PGM has wider applications as industrial metals, which could benefit from the economic turnaround.

Gold Price Chart - Technical outlook

Gold: Daily chart

Gold’s daily chart shows that the price has failed to find acceptance above the 21-simple moving average (SMA), now at $1839.

Meanwhile, an impending death cross could add credence to further downside in the XAU/USD pair. A death cross is confirmed when the 50-simple moving average (SMA) cuts the 200-SMA from above.

Backing the downside bias, gold trades below all the major averages on the given timeframe while the 14-day relative strength index (RSI) points south below the midline. Therefore, a test of the Feb 8 low of $1808 remains inevitable, below which the January 18 low of $1803.

To the upside, recapturing the 21-DMA is critical for the XAU bulls to take on the fierce resistance around $1858, the confluence of the 50 and 200-DMAs. The next stop for the buyers awaits at $1869, the horizontal 100-DMA.