Gold Weekly Forecast: XAU/USD remains vulnerable unless it manages to reclaim $1,760

The XAU/USD pair staged a technical rebound at the start of the week and advanced to $1,760 as the US Treasury bond yields continued to pull away from the yearly highs set in the previous week. However, the poor performance of major equity indexes helped the USD preserve its strength and made it difficult for XAU/USD to edge higher.

With the 10-year US T-bond yield gaining traction and jumping to fresh yearly highs in the second half of the week, gold came under strong selling pressure and dropped below $1,700 for the first time since June. Although the pair recovered a small portion of its losses ahead of the weekend, it closed the third straight week in the negative territory near $1,700 and lost around 2%. 

What happened last week

On Monday, the data from the US showed that the business activity in the manufacturing sector continued to expand at an impressive pace with the ISH Manufacturing PMI jumping to a fresh three-year high of 60.8.

On Wednesday, the ADP Employment Change arrived at 117,000 for February and fell short of the market expectation of 177,000. Moreover, the ISM Services PMI inched lower to 55.3 and missed analysts’ estimate of 58.7.

Nevertheless, the market reaction to these figures remained relatively muted with investors refraining from making large bets ahead of FOMC Chairman Jerome Powell’s speech on Thursday.

While speaking at the Wall Street Journal Jobs Summit, Powell essentially downplayed the worries over the bond market turmoil. The chairman said that they would be concerned  "by a persistent tightening of financial conditions broadly." Regarding the policy outlook, Powell reiterated that the current setting is appropriate and noted that they are still a long way from the Fed’s inflation and employment goals. The benchmark 10-year US T-bond yield surged higher following these comments and rose more than 5% on Thursday. Consequently, the US Dollar Index advanced to its best level in more than three months to reflect the broad-based USD strength.

Finally, the US Bureau of Labor Statistics reported on Friday that Nonfarm Payrolls in February surged by 379,000, compared to analysts' estimate of 182,000. Furthermore, the Unemployment Rate declined to 6.2% with the Labor Force Participation Rate staying unchanged at 61.4%. The greenback preserved its strength after this report and didn't allow XAU/USD to make a convincing rebound.

Next week

There won’t be any significant macroeconomic data releases that have the potential to trigger a noticeable market reaction at the start of the week and investors will remain focused on the US T-bond yields. 

On Wednesday, February Consumer Price Index (CPI) data from the US will be looked upon for fresh impetus. Experts expect the Core CPI to remain unchanged on a yearly basis at 1.4%. A stronger-than-expected reading is likely to help the USD outperform its rivals and weigh on XAU/USD. 

On Thursday, the European Central Bank (ECB) will announce its Interest Rate Decision and publish the monetary policy statement. The ECB is not expected to make any changes to its policy rate but some experts think that it could ramp up the pace of its Pandemic Emergency Purchase Programme (PEPP) purchases. In any case, changes to the USD's market valuation after this event could impact gold's movements.

Gold technical outlook

On the daily chart, XAU/USD continues to fluctuate in a descending channel but the Relative Strength Index (RSI) indicator stays below 30, suggesting that the next move could be a technical correction. However, unless the pair manages to break above this channel, sellers could look to remain in control of the price. 

On the upside, the initial static resistance is located at $1,740. Above that level, the next static hurdle, which is reinforced by the descending line, could be seen at $1,760 ahead of $1,780 (20-day SMA).

Supports are located at $1,687 (multi-month lows set on Friday), $1,680 (strong static level from April, May and June of 2020) and $1,670 (June 1, 2020, low).

Gold sentiment poll

The FXStreet Forecast Poll shows that none of the experts sees gold prices rising in a one-week view and the average price target is located at $1,665. Although 50% of experts seem to have adopted a bullish outlook in a one-month view, the target of $1,738 suggests that XAU/USD is unlikely to shift into an uptrend.