Gold Price Forecast: XAUUSD consolidates near YTD low, seems vulnerable to slide further

Gold Price, so far, has struggled to gain any meaningful traction and remained in a narrow trading band for the third successive day on Monday. Given the recent fall to the lowest level since September 2021, around the $1,733 area touched on Friday, the range-bound price action might be categorized as a consolidation phase before the next leg down. The underlying strong bullish sentiment surrounding the US dollar, bolstered by hawkish Fed expectations, turned out to be a key factor that continued acting as a headwind for the dollar-denominated commodity.

In fact, the key USD Index stood tall near a two-decade high and continued drawing support from growing acceptance that the Fed would retain its aggressive policy tightening path to curb soaring inflation. The bets were reaffirmed by Friday's upbeat US NFP report, which showed that the US economy added 372K jobs in June. This was below an increase of 384K (revised down from 390K) reported in May, though surpassed consensus estimates of 268K by a big margin. Adding to this, the Unemployment Rate matched market expectations and remained unchanged at 3.6%.

The prospects for faster Fed rate hikes triggered a sharp spike in the US Treasury bond yields, which was seen as another factor that benefitted the buck and weighed on the non-yielding gold. That said, the worsening global economic outlook helped limit deeper losses for the safe-haven XAUUSD, at least for the time being. Investors remain concerned that tightening financial conditions would pose challenges to global economic growth. This, along with the Russia-Ukraine war and the latest COVID-19 outbreak in China, has been fueling recession fears.

The combination of diverging forces held back traders from placing aggressive bets and led to subdued price moves for the third successive day on Monday. Nevertheless, the bias still seems tilted in favour of bearish traders as the focus now shifts to the latest US consumer inflation figures, due on Wednesday. Apart from this, the US monthly Retail Sales data and Prelim Michigan Consumer Sentiment on Friday will influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities around gold.

Technical outlook

From a technical perspective, the recent price action constitutes the formation of a rectangle – a continuation pattern - on hourly charts. Sustained weakness below the trading range support, around the $1,733 region, will reaffirm the near-term bearish outlook and make gold price vulnerable. The downward trajectory could then drag the XAUUSD towards the next relevant support near the $1,721 area, en-route the $1,700 round figure and August 2020 low, around the $1,687-$1.686 region.

On the flip side, Friday’s peak, near the $1,752 zone, now seems to act as immediate strong resistance. Sustained strength beyond might trigger a short-covering move and lift gold price further towards the $1,767-$1,770 strong horizontal support breakpoint. Some follow-through buying would suggest that the XAUUSD has formed a near-term base and allow bulls to aim back to reclaim the $1,800 mark.