Gold Price Forecast: XAU/USD inches higher above $1,820 on softer USD

Update: Gold prices trade higher above $1,820 with 0.34% gains. It took more than two weeks from the dip of $1,687 on August 9 to traveled toward recent highs. The lower USD valuations helped the precious metal to record gains. The movement came after the FOMC Chair Jerome Powell didn’t drop a signal as to when the central bank would start reducing its asset purchases and reiterated his view that current inflations spikes are transitory. He sounded more cautious than other Fed’s officials when talking about tapering. The lower US benchmark yields also enhanced the non-yielding asset sheen. Meanwhile, the persistent fear over the rapid increase of the Delta strain in the Asia-pacific region capped the downside in the prices. 

Gold surged from $1,790 territories on Friday as the US dollar fell into the hands of the bears on Friday, albeit somewhat prematurely which puzzled traders.

The greenback was sold off just ahead of the release of the text of Federal Reserve Jerome Powell's speech to the annual Jackson Hole economic conference.

Minutes before 1400 GMT when the text of Powell's remarks was released, the US dollar, as measured by the index DXY, fell 0.2%. 

Nevertheless, it was the right move considering Powell did not make any explicit timings for when tapering will begin, assuring investors the US central bank is in no hurry to reduce its pandemic-era emergency asset programs. 

Consequently, the dollar index DXY, which measures the greenback's performance against a basket of six major currencies, fell 0.39% to 92.6760, subsequently supporting the precious metals. 

Gold prices squeezed out the shorts through $1,810 stops to the upside and scored a high of $1,819.22.

The price in Asia's open has scored a fresh high of $1,19.70 so far on Monday. 

Powell said there had been clear progress toward maximum employment and he believed that if the US economy improved as anticipated, "it could be appropriate to start reducing the pace of asset purchases this year,"  but most likely not as soon as September.

Markets are left weighing the odds of a taper as soon as November, which is plausible if the next two employment reports are very strong. 

Dovishly, Powell also told the Fed's annual Jackson Hole symposium the timing and pace of tapering should not be construed as a signal for when interest rates will begin to rise.

Prior to the speech, Fed hawks had been circling over the Jackson Hole which boosted the US dollar a day before.

Federal Reserve hawks, Robert Kaplan and St. Louis Fed's Bullard both expressed a sense of urgency to taper when making media appearances before the event. 

The hawks are unlikely to disappear which remains a risk for US dollar bears for the week's ahead leading to the September FOMC meeting. 

In an environment where risks can remain arguably tilted to the upside in the greenback, pertaining to its safe-haven status, delta uncertainties and central bank divergences, precious metals could be rallying into the wind at this juncture.

That being said, traders will now look to the ECB for clues as to just how distant the central bank is to ‘tapering’ or whether there is room for convergence between the Fed and ECB.

ECB’s Phillip Lane was concrete at the Jackson Hole, basically, promising to calibrate the QE program to financial conditions BOTH in an upwards and in a downwards direction.

This currently means that the recent new all-time lows seen in EUR real rates could be used as an argument to tone down PEPP-purchases, potentially as soon as September.

However, with a focus on US data and the Federal Reserver’s September meeting, there is now plenty of dry powder on the sidelines.

If September’s August jobs report is accompanied by hawkish Fed chatter and should sentiment switch to an imminent taper, then the greenback could bounce back aggressively.

Gold & DXY technical analysis

Technically, however, the DXY is back below the 200-day smoothed simple average at 93.15 and gold has pierced a daily trendline resistance.

DXY bulls needed to see the weekly close above 93.50 but have been denied:

A drop to test the counter trendline should fuel a bud on gold and a break below it opens even more upside potential for the yellow metal. 

Bulls now eye the end of July highs of 1,834 as the next target:

 This may prove to be firm on first tests but the old trendline resistance would be expected to then act as a counter-trend support.

1,856 comes next ahead of the June 1 highs of 1,916. Gold bears will only be back in the clear while below 1,769 but there is risk to 1,805 as meanwhile support that meets the 38.2% Fibo retracement.