Gold Price Forecast: XAU/USD slides to $1,800 neighbourhood, downside seems limited

Update: Gold extended Friday's retracement slide from the $1,831-32 region, or two-week tops and witnessed some follow-through selling on the first day of a new trading week. This marked the second successive session on a negative move and dragged the XAU/USD to two-day lows, around the $1,807-06 region during the early European session. A generally positive tone around the equity markets was seen as a key factor that undermined demand for the safe-haven precious metal. That said, a combination of factors should help limit any deeper losses for gold and warrant some caution for aggressive bearish traders.

The US dollar languished near one-month lows amid firming market expectations that the Fed will wait for a longer period before slowing its massive monetary support. This, in turn, might act as a tailwind for dollar-denominated commodities, including gold. Apart from this, worries about the fast-spreading Delta variant of the coronavirus and the recent decline in the US Treasury bond yields should further help limit any deeper losses for the non-yielding yellow metal. Hence, it will be prudent to wait for some strong follow-through selling before positioning for any further depreciating move.

Market participants now look forward to the US economic docket, highlighting the ISM Manufacturing PMI for some impetus later during the early North American session. The key focus, however, will remain on the closely-watched US monthly jobs data. The popularly known NFP report is scheduled for release on Friday, which will play a key role in influencing the USD price dynamics and assist investors to determine the near-term trajectory for gold.

Previous update: Gold (XAU/USD) kick-starts August with mild losses of 0.22% intraday, around $1,810 heading into Monday’s European session. The yellow metal managed to post a positive weekly closing by the end of Friday amid broad US dollar weakness. However, cautious sentiment ahead of this week’s US Nonfarm Payrolls (NFP), not to forget today’s US ISM Manufacturing PMI, for July weigh on the commodity prices.

Other than the traders’ wait-and-watch mood, a complex market scenario filled with the downbeat Treasury yields in the US and China battling positive Asia-Pacific equities and stock futures also trouble the gold traders. On the top, sluggish US dollar and month-start position building seem to weigh on the gold prices.

It’s worth noting that the options market was the most bullish on gold, per one-month risk reversal data from Reuters, in 2021 during July. Hence, position consolidation may have triggered the commodity’s pullback of late.

Talking about the yields, US 10-year Treasury yields drop 1.4 basis points to 1.225% whereas Chinese bond yields drop to the lowest since June 2020. The bond coupons justify the market’s fears of Delta covid variant and Japan’s government pension fund’s, the world’s largest pension fund, cut in the US bond weigh in holdings.

On the contrary, Asia-Pacific stocks cheer hopes of stimulus as US lawmakers put forward President Joe Biden’s infrastructure spending package on the Senate’s floor with the hopes of getting it through the House during this week. China is also up for a multi-billion-dollars worth of aid package to the state-backed enterprises after the IT crackdown roiled Chinese equities in recent days.

Moving on, US ISM Manufacturing PMI for July, expected 60.8 versus 60.6, may reconfirm the soft economic path of the world’s largest economy, which is the need for easy money and further gold strength. However, stronger data may renew USD buying and can extend the latest selling of the commodity. Above all Friday’s US NFP will be the key even as the Fed quietly ignored the tapering talks during the last week’s meeting.

Technical analysis

Gold’s latest pullback from $1,833 portrays an ascending triangle bearish chart formation. However, 100-SMA restricts immediate downside.

Given the downbeat MACD and Momentum, the metal is likely to confirm the bearish chart pattern with a break of an ascending support line from June-end, surrounding $1,802.

It should be noted, however, that a horizontal line from early July could challenge gold sellers around $1,790, a break of which will confirm the double top formation and add strength to the downside momentum targeting the late June’s low near $1,750.

Meanwhile, recovery moves may struggle around $1,820 before confronting the stated double-tops near $1,834.

Though, a clear upside break of the $1,834 key hurdle could trigger a rally targeting the $1,880 theoretical mark.

Overall, gold is up for a short-term pullback but remains range-bound since early July.

Gold: Four-hour chart

Trend: Further weakness expected