Gold Weekly Forecast: Technicals point to bearish tilt as focus shifts to Jackson Hole

Gold closed every day of the week in negative territory and snapped a four-week winning streak. Rising US Treasury bond yields, on hawkish Fed commentary and escalating global recession fears, weighed on XAU/USD throughout the week. As focus shifts to key data releases from the US and central bankers' appearance at the Jackson Hole Symposium next week, sellers look to retain control.

What happened last week?

Disappointing Retail Sales and Industrial Production data from China revived fears over a global economic slowdown and reminded investors of its potential negative impact on gold's demand outlook. With safe-haven flows dominating the financial markets at the beginning of the week, XAU/USD lost more than 1% on Monday before going into a consolidation phase on Tuesday

On Wednesday, the data from the US revealed that Retail Sales remained unchanged on a monthly basis in July. This reading failed to trigger a significant market reaction. Later in the day, the FOMC's July meeting minutes revealed some participants said the policy rate would have to reach a 'sufficiently restrictive' level and remain there 'for some time' to control inflation. Since the Fed's publication didn't include policymakers' views on the latest inflation and employment data, it was largely ignored by market participants. Nevertheless, with the benchmark 10-year US Treasury bond yield rising more than 3% mid-week, gold extended its slide toward $1,760.

Markets stayed relatively quiet during the first half of the day on Thursday. The weekly data published by the US Department of Labor showed that Initial Jobless Claims declined to 250,000, compared to the market expectation of 265,000. Other data revealed that the headline Diffusion Index for current general activity of the Federal Reserve Bank of Philadelphia's Manufacturing Business Outlook Survey improved to 6.2 in August from -12.3 in July. On a negative note, Existing Home Sales in the US declined for the sixth straight month in July to a seasonally adjusted annual rate of 4.81 million. Although the dollar's reaction to mixed data was muted, the currency capitalized on hawkish Fed commentary and registered impressive gains against its major rivals. 

Commenting on the policy outlook during an interview with CNN, "markets have a lack of understanding but consumers understand that rates won't go down right after they go up," said San Francisco Fed President Mary Daly. St. Louis Fed President James Bullard, meanwhile, said that he was in favor of the Fed continuing to frontload rate hikes and added that he would prefer a 75 basis points increase at the September policy meeting. Following these comments, gold dropped to its lowest level since late July near $1,750.

In the absence of high-impact data releases, XAU/USD struggled to stage a rebound and ended up losing more than 2% on a weekly basis.

Next week

The S&P Global will publish the preliminary Manufacturing and Services PMI surveys for August on Tuesday. Headline PMIs are expected to improve modestly from July levels. Details surrounding price pressures will be watched closely by market participants. In case the surveys point to softer inflation, the dollar could find it difficult to preserve its strength and help XAU/USD recover and vice versa. A significant decline in headline PMIs could also weigh on the greenback. July New Home Sales data will also be looked upon for fresh impetus. The US housing market is in a bad shape due to rising interest rates and weakening demand for mortgages. Hence, a straightforward market reaction with a disappointing print hurting the USD could be witnessed. 

On Thursday, the US Bureau of Economic Analysis (BEA) will release its second estimate for the annualized Gross Domestic Product (GDP) growth in the second quarter. Markets expect the BEA to revise the GDP modestly higher to -0.8% from the initial estimate of -0.9%.

In the second half of the week, market participants will pay close attention to the annual Jackson Hole Symposium. On the second day of the event, on Friday, FOMC Chairman Jerome Powell will be delivering a speech. In case Powell pushes back against the market view of the Fed turning dovish in the second half of 2023, the dollar should be able to continue to outperform its rivals and drag XAU/USD lower. On the other hand, a relief rally could be triggered in case the chairman hints at a 50 basis points (bps) rate hike in September rather than a 75 bps increase. In that case, US T-bond yields could fall sharply and open the door for a decisive rebound in gold.

The CME Group FedWatch Tool shows that markets are currently pricing in a 46.5% probability of a 75 bps increase, suggesting that investors are yet to make up their minds about the size of the next rate hike. Hence, depending on Powell's tone, gold could react significantly in either direction.

Gold technical outlook

The near-term technical outlook points to a bearish tilt. The Relative Strength Index (RSI) indicator on the daily chart fell below 50 and gold closed the last two trading days below the 20-day SMA. On the downside, the immediate support is located at $1,740 (static level) ahead of $1,720 (static level) and $1,700 (psychological level, the end-point of the latest downtrend). 

The 20-day SMA aligns as interim resistance at $1,770 before $1,780 (50-day SMA, Fibonacci 23.6% retracement). In case the price rises above the latter and starts using it as support, $1,800 (psychological level) could be seen as the next recovery target.

Gold sentiment poll

Half of the experts polled by FXStreet expect gold to continue to push lower while the other half see it consolidating its losses. The one-week average price target sits at $1,736. On the one-month view, the bearish bias stays intact with several experts forecasting gold to drop to $1,700.