Gold Price Weekly Forecast: XAU/USD closes in on key support on China slowdown fears

Gold price failed to build on previous Friday’s gains and started the week on a bearish note. Disappointing data releases from China in the first half of the week dragged XAU/USD to its lowest level in almost a month, and the pair struggled to regain traction despite softer-than-expected inflation data from the US. Next week, investors will pay close attention to Retail Sales data from China and the US ahead of the minutes of the Federal Reserve’s July policy meeting.

What happened last week?

Hawkish comments from Federal Reserve (Fed) Governor Michelle Bowman triggered a rebound in US Treasury bond yields and caused Gold price to turn south on Monday. Bowman said additional rate hikes will likely be needed to lower inflation back to target and noted that the US labor market remains tight. Following the sharp decline seen on Friday after mixed labor market data, the 10-year US T-bond yield rose more than 1% on Monday and recovered back above 4%.

Early Tuesday, the data from China showed that the country’s trade surplus widened to $80.6 billion in July from $70.6 billion in June. On a concerning note, however, exports and imports contracted by 14.5% and 12.4% on a yearly basis, respectively. These figures revived concerns over a slowdown in China’s economy, the world’s biggest gold consumer, and XAU/USD closed the second straight day in negative territory. Later in the American session, Philadelphia Federal Reserve Bank President Patrick Harker said that policy makers will probably start lowering the policy rate sometime next year and argued that they may have reached a point where they can be patient and hold the rate steady. These comments caused US yields to decline and helped Gold price limit its losses.

The Consumer Price Index in China declined 0.3% on a yearly basis in July, data from the National Bureau of Statistics of China showed on Wednesday. With this reading highlighting the poor consumer activity, XAU/USD continued to push lower midweek and dropped below $1,920 for the first time in nearly a month. 

On top of uninspiring Chinese data, US President Joe Biden signed a bill late Wednesday to restrict US investments in certain Chinese entities. In response, "we hope that the US side will respect the laws of market economy and the principle of fair competition, refrain from artificially impeding global economic and trade exchanges and cooperation, as well as setting obstacles for the recovery of world economic growth," said a spokesperson for China's Commerce Ministry.

On Thursday, data from the US Bureau of Labor Statistics showed that inflation in the US, as measured by the change in the Consumer Price Index (CPI), edged higher to 3.2% on a yearly basis in July from 3% in June. This print came in slightly below the market forecast of 3.3%. On a monthly basis, the CPI and the Core CPI – which strips volatile food and energy prices – both increased 0.2%, matching June readings and analysts’ estimates. The initial market reaction caused the US Dollar to lose strength. In turn, XAU/USD recovered sharply and briefly rose above $1,930. Commenting on the inflation data, San Francisco Fed President Mary Daly said that she would need to see a “path of inflation completely downward” to support holding rates steady.10-year T-bond yield managed to stabilize above 4% following these remarks and didn’t allow Gold price to extend its rebound.

Ahead of the weekend, the US Bureau of Labor Statistics reported that the Producer Price Index (PPI) for final demand in the US rose 0.8% on a yearly basis in July, up sharply from 0.1% increase recorded in June. This reading came in slightly higher than the market expectation of 0.7%, helping the USD hold its ground and making it difficult for Gold price to rebound.

Next week

Retail Sales data from China and the US will be watched closely on Tuesday. Considering this week’s reaction to disappointing data releases from China, it is reasonable to expect a decline in Gold price in case of a downside surprise. 

On Wednesday, the Federal Reserve will release the minutes of the July policy meeting, at which the US central bank decided to raise the policy rate by 25 basis points. Since that decision, July Nonfarm Payrolls and CPI data failed to alter the market pricing of the Fed rate outlook in a noticeable way. According to the CME Group FedWatch Tool, markets still see a slightly higher than 20% probability of the Fed raising the policy rate one more time in 2023. July FOMC Minutes, unless they offer a significant hawkish or dovish surprise, nor Retail Sales data are unlikely to influence the market positioning. 

In the absence of high-tier data releases in the second half of the week, the US Department of Labor’s weekly Initial Jobless Claims data could trigger a short-lasting reaction in XAU/USD. In the week ending August 5, the number of first time applications for unemployment benefits rose by 21,000 to 248,000. A similar increase could highlight loosening conditions in the US labor market and weigh on the USD.

With 40 more days to go until the next Fed meeting, market players will scrutinize comments from policymakers to confirm or deny chances of another rate increase this year. If the 10-year US yield drops below 4% on dovish comments and fails to reclaim that level, Gold price could stage a rebound. 

Gold technical outlook

Near-term technical outlook for XAU/USD points to a bearish bias. The Relative Strength Index (RSI) indicator on the daily chart stays below 50 and the pair continues to pull away from the 20-day and the 50-day Simple Moving Averages (SMA).

On the downside, $1,900 (psychological level, Fibonacci 38.2% retracement, 200-day SMA) aligns as critical support. A daily close below that level could ramp up technical selling pressure and pave the way for an extended decline toward $1,880 (static level) and $1,850 (Fibonacci 50% retracement).

Looking north, first hurdle is located at $1,940 (50-day SMA) before $1,950/$1,955 area, where the Fibonacci 23.6% retracement and the 20-day SMA form strong resistance, and $1,970 (100-day SMA).

Gold forecast poll

Several experts polled by FXStreet expect Gold price to advance to $2,000 in a one-month view. The one-week average target aligns at $1,911.