Gold Price Forecast: XAU/USD’s path of least resistance appears to the upside

Gold (XAU/USD) resumed its recovery from three-week lows on Monday, gaining nearly $40 to settle the day near $1986. The latest rally came on the heels of the persistent bearish mood in the US dollar against its main competitors. The greenback faced a triple whammy, in light of the slumping US Treasury yields, fiscal deadlock and concerns over the economic recovery, given the continued rise in the coronavirus cases in the US. Meanwhile, the risk-on action Wall Street amid a rally in the tech stocks, further, dulled dollar’s safe-haven appeal, as investors shrugged-off US-China tensions over the Huawei issue.

The yellow metal, however, spiked $30 in a matter of 30 minutes on reports that the legendary investor Warren Buffet’s Berkshire Hathaway revealed a 20.9 million-share stake in Q2 in Barrick Gold.

Looking ahead, the bright metal will continue to draw support from broad-based US dollar weakness amid falling Treasury yields and nervousness ahead of Wednesday’s FOMC minutes. The benchmark 10-year US Treasury yields drop 1% to hover around 6.77%, in multi-day lows, at the time of writing. Meanwhile, any escalation on the US-China front could bode well for the safe-haven gold. The focus will be on the US housing data for fresh cues on the economy, especially after the disappointing US Retail Sales and regional manufacturing data undercut the nascent economic rebound.

Short-term technical perspective  

Gold: Hourly chart

Gold has charted a bull pennant breakout on the hourly chart earlier in the Asian session this Tuesday. The pattern got confirmed after the price took out the critical resistance at $1985.50, which is the convergence of the 200-hourly Simple Moving Averages (HMA) and falling trendline (pattern) resistance.

The bulls look to regain the critical $2000 barrier, a break above which will call for a test of the August 11 high at $2030.

For the buyers to take on the record highs of $2075, a sustained breakthrough above the $2050 level is critical. That level is the intersection of the August 10 high and psychological level. The hourly Relative Strength Index (RSI) flirts with the overbought territory, with further scope of upside.

Alternatively, the previous resistance-turned-support at $1985.50 will limit the immediate downside. The next cushion awaits at the rising trendline (pattern) support at $1982 below which the bullish 21-HMA at $1976 could be tested.

The bears need an hourly closing below the upward-sloping 100-HMA at $1958 to negate the near-term bullish bias. Note that Monday’s rally picked up pace only after the price closed above the 100-HMA, then at $1941, on the hourly chart.

Gold: Additional levels to consider