Gold Price Forecast: XAU/USD regains upside momentum past $1,800 on sour sentiment

• Gold bears are pressuring the daily support structure as the greenback wobbles. 
• The euro and US data have weighed on the US dollar on Thursday. 

Update: Gold (XAU/USD) reverses the early Asian pullback, picking up bids to refresh intraday high around $1,808, headline into Friday’s European session. In doing so, the yellow metal rejects the previous day’s pause to the six-day winning streak even as the US dollar index (DXY) and the Treasury yields rebound.

That said, gold prices gain 0.25% on a day as the coronavirus (COVID-19) woes escalate, putting a safe-haven bid under the precious metal, gold and US bond in an unusual synergy.

As per the latest update, South Korea registers another daily record of infections whereas Australia’s New South Wales (NSW) Premier Gladys Berejiklian rejected odds of unlock by next Friday while saying, “NSW is facing the biggest challenge we have faced since the pandemic started.” It’s worth noting that the UK refreshed six-month high virus cases the previous day and increasing numbers of virus variants in the US also weigh on the market sentiment, directing toward the risk-safety.

While portraying the mood, S&P 500 Futures drop 0.30% whereas US Treasury yields recover from February lows and the DXY also prints mild gains by the press time.

 

Update: Gold (XAU/USD) extends pullback from a three-week top, flashed the previous day, towards $1,801, down 0.10% intraday, amid Friday’s Asian session. In doing so, the yellow metal takes clues from the firmer US Treasury yields, underpinning the US dollar rebound.

The yellow metal snapped a six-day uptrend on Thursday, stepping back from the multi-day top, as bulls and bears jostle over the coronavirus (COVID-19) and the US dollar pullback.

Although the covid conditions haven’t changed much, with virus variants probing economic recovery, the investors' focus off the Fed seem to have triggered the US Treasury yeilds' U-turn. 

That said, the US 10-year Treasury yields gain three basis points (bps) to 1.319% by the press time whereas the S&P 500 Futures remain sluggish after a negative performance of the Wall Street benchmarks.

 

The price of gold is lower on Thursday, falling from a high of $1,818.40 to a low of $1,794.45 and is down near 0.3% at the time of writing. 

The lower move in gold was despite a softer US dollar that has retreated on Thursday from a three-month high.

The European Central Bank set a new inflation target which pushed the euro higher to test bearish commitments in the broader bear trend. 

The greenback was also suffering due to data showed the number of Americans filing new claims for unemployment benefits rose unexpectedly last week, which raises sentiment in contrast to the market's positioning for a more hawkish central bank. 

The Minutes of the US Federal Reserve's June policy meeting released the prior day have shown that Fed members agreed they should be poised to act if inflation or other risks materialized.

Although acknowledging the economic recovery "was generally seen as not having yet been met," some Fed members saw the conditions for tapering being met sooner than they had anticipated at previous meetings.

''The bottom line is that some are pushing for tapering sooner rather than later and some are counselling patience.  With this split in place, it seems tapering is not likely to be imminent,'' analysts at Brown Brothers Harriman explained. 

''While we expect the debate to continue and intensify at the July 27-28 meeting, we don't think the Fed will commit to tapering yet.  That said, we still think the Fed tapers before year-end and may provide more clarity at the August Jackson Hole Symposium or the September 21-22 FOMC meeting.''

A Reuters poll expects the central bank to announce a strategy in August or September for tapering its asset purchases.

The majority of those polled have predicted that the first cut to its bond-buying program will begin early next year, about a third of respondents forecast it will happen in the final quarter of this year.

Meanwhile, the dollar index DXY, which measures the greenback against six rivals, fell 0.5% to 92.25 from Wednesday, when it touched 92.844 for the first time since April 5. 

At the time of writing, the index is off the lows and down 0.31% at 92.417 after completing a restest of the W-formation's neckline as follows:

If the support of the formation holds, the price would be expected to rise to test the early April old support and now turned resistance area and weigh on the price of gold.

That being said, from a fundamental perspective, analysts at TD Securities argued that the pricing for Fed hikes remains too hawkish.

''With rates markets pricing in the death of the reflation trade, gold is catching a bid as global macro participants reprice inflation tail risk. In data we trust, as the market attempts to pinpoint the Fed's exit strategy,'' they said.

The analysts also argue that the precious metals complex continues to trade terribly weak against real rates, pointing to a lack of impetus for speculators to buy the yellow metal just yet.

''Ultimately, we believe there is still mettle in the precious metals, as inflation should prove transitory, which implies that market pricing for Fed policy is too hawkish.

With gold already managing to hold onto its uptrend, this scenario could ultimately catalyze a return of institutional interest which could see prices firm north of $1900/oz.''

Gold technical analysis

The price has reached a 38.2% Fibonacci retracement of the mid-June bearish impulse and has been rejected.

The support structure is being pressured, testing the bull's commitments to the correction and the price would be expected to penetrate to at least the 38.2% if not the 50% Fibonacci landmarks in the 1,790s and 1,780s.