Gold Price Forecast: Bears taking on bullish commitments at key support

• Gold consolidates at the start of the week but breakout on the cards.
• US dollar picks up a safe-haven bid towards three-year highs. 
• Update: Bears take over and attack trendline support.

Asia session update: Bears are taking over and pulling the price of gold below the 4-hour trendline support. At the time of writing, XAU/USD is trading down 0.15% to a low of $1,751.31 from a high of $1.754.65.

Gold, 4-hour chart

The gold price has been attempting to stabilise with eyes on a bullish correction as per the technical analysis below. However, the US dollar is firmer in the Asian session, so far. DXY is moving in on the daily highs of 94.50 and a break there will possibly encourage more flows into the greenback, serving as a headwind for gold prices. A break below horizontal support of $1,745 could ignite a strong offer on the price of gold. 

End of update

The price of gold on Monday was consolidating at daily support between a low of $1,750.24 and a high of $1,761.09. Inflation and consumer spending data is going to be critical for the days ahead leading into the Federal Reserve. 

Meanwhile, the US dollar has been bid to start the week while investors remain cautious over the surging energy prices around the world which have kicked off a flow into safer havens, such as the greenback. DXY, a measure of the US dollar vs a basket of major rival currencies rallied towards a one-year high of 94.504 touched earlier this month. DXY hit 94.40 on the day. Investors are monitoring for further signs in the US economic recovery that will prompt the US Federal Reserve to announce a tapering of its bond purchases next month.

Meanwhile, oil prices surged on Monday to multi-year peaks, fueled by the rebound in global demand and this has weighed on US stocks as investors fear global supply-chain backlogs. US fixed income markets are closed on Monday for a holiday but the yield on benchmark 10-year Treasuries hit a four-month high of 1.617% on Friday, even after data showed the US economy created the fewest jobs in nine months in September, missing forecasts. Nevertheless, inflation worries remain elevated which is fuelling the prospects that the Fed will have to start to reduce its emergency stimulus begun last year.

Gold's compelling upside story

''Looking beyond Fed pricing, higher wages and no rise in participation rate will keep the stagflation theme alive, and gold could be an ideal hedge against these rising stagflationary winds,'' analysts at TD Securities argued. 

''As the global energy crisis intensifies, impacting the production of goods across the world and supply chains across Europe and Asia, reasons to own the yellow metal are growing more compelling,'' the analysts added, ''Indeed, as these issues fuel concerns of slowing demand and rising inflation, price action across rates in recent trading sessions suggest that global macro is just starting to price in implications of the energy crisis. ''

Also, the analysts at TD Securities explained that, ''the Post-Fed move higher in rates was led by real rates, whereas it is now being led by breakevens, suggesting the market is pricing in higher inflation due to the spike in energy, but acknowledging that this is a supply-shock which impacts growth negatively.''

''In turn, with positioning in the yellow metal increasingly short, including CTAs, potential strength in gold due to this growing stagflationary narrative could spark aggressive short covering on the horizon.''

Gold technical analysis

• Gold Chart of the Week: XAU/USD bulls step in

As illustrated on the chart above in analysis at the Asian open this week, from a 4-hour perspective, in targeting towards the 200-MA and prior structure above it, ''gold bulls would be prudent to see the price make a move in the direction of the target to break the near term resistance around $1,770. In engaging above this area, there is a higher probability of a bullish continuation for gold this week.''

Live market, 4-hour chart

The price remains in consolidation below the critical resistance. A break there would be expected to see the prior analysis follow through. That being said, a break of the trendline support and subsequent drop below the horizontal support would be expected to result in a downside continuation.