Gold Price Forecast: XAU/USD retreats back closer to daily lows, around $1,780

Update: Gold surrendered a major part of its modest intraday gains to the $1,788 region and has now moved well within the striking distance of daily lows. Currently, trading just above the $1,780 level, sustained US dollar buying interest was seen as a key factor that acted as a headwind for the dollar-denominated commodity. Investors now seem convinced that the Fed is comfortable to roll back its pandemic-era stimulus and pushed the key USD Index to a fresh nine-and-half-month high on Friday.

Meanwhile, the prospects for the Fed tapering its massive bond purchases come amid worries that the fast-spreading Delta variant of the coronavirus could derail the global economic recovery. This, in turn, continued weighing on investors' sentiment, which was evident from a generally weaker tone around the equity markets. The risk-off mood, in turn, extended some support to traditional safe-haven assets and helped limit any deeper losses for gold, at least for the time being.

In the absence of any major market-moving economic releases from the US, the USD price dynamics and the broader market risk sentiment might provide some impetus to the XAU/USD. That said, the intraday momentum is more likely to remain restrained as the market focus now shifts to the Jackson Hole Symposium scheduled for 26 to 28 August.

Previous update: Gold (XAU/USD) refreshes intraday high to $1,786 as European traders await Friday’s bell. The yellow metal rises the most in four days by the press time as the US dollar steps back from a nine-month high amid mixed clues. Also teases the gold buyers is the bullish chart formation.

The US Dollar Index (DXY) steps back from the multi-day high refreshed early in Asia, down 0.05% to 93.52 at the latest. The greenback gauge initially jumped to the new high of 2021 while extending the previous day’s upside moves, backed by the virus-led risk-off sentiment and tapering concerns. However, vaccine optimism and updates relating to China seem to probe the DXY bulls amid a light calendar.

New Zealand extends the virus-led initial three-day lockdown to August 24 after the covid infections spread out from Auckland to the capital Wellington while Australian covid cases eased after refreshing the record top the previous day. Germany reports the highest daily covid cases in three months while numbers from the UK and the US also challenge the market optimism. However, China’s daily COVID-19 cases dropped to 33 versus 46 marked on Thursday.

The UK’s push for vaccinating 12–17 years old and the American rush for booster shots portrays vaccine optimism. On the same line was the Western leaders’ readiness to help the struggling Asia–Pacific nations with jabs.

Also positive was the news from Reuters that Japan's cabinet approval of a 9.27 billion yen ($84.50 million) emergency budget to help the country's self-defense forces carry out medical aid amid the coronavirus pandemic. Additionally, the South China Morning Post (SCMP) report signaling Beijing's easy move on Hong Kong also slow down the rush to risk safety. “Beijing unexpectedly postpones vote on adding anti-sanctions legislation to Hong Kong’s Basic Law,” said SCMP.

Against this backdrop, US 10-year Treasury yields seesaw around 1.24% whereas S&P 500 Futures drop 0.21% at the latest.

Given the lack of major data/events on Friday, the risk catalysts, mainly relating to the COVID-19 and vaccines, will be important to follow for short-term directions.

Technical analysis

Gold (XAU/USD) prints a bullish flag chart pattern on the four-hour (4H) play amid the receding bearish bias of the MACD.

Although odds favoring gold’s further recovery increase of late, confirmation of the bullish flag formation, by crossing $1,790, won’t be enough to recall the gold buyers.

The reason could be linked to the existence of 200-SMA around $1,795 and the $1,800 threshold.

Should the gold buyers keep reins past $1,800, a one-month-old horizontal resistance near $1,835 will return to the chart.

Meanwhile, a downside break of the stated flag’s support, around $1,773 will quickly fetch the quote to $1,750 and the $1,727 support levels before highlighting the $1,700 for gold bears.

In a case where the precious metal drops below $1,700, the monthly low, also the lowest since March, around $1,676, will be in focus.

Gold: Four-hour chart

Trend: Further recovery expected