Gold Price Forecast: XAU/USD stays directed towards $1,910 as bears seek clues to confirm US soft landing

Gold Price (XAU/USD) remains pressured at the lowest level in a week after falling the most in five weeks the previous day, making rounds to $1,926 amid early Wednesday. That said, the broad US Dollar strength joins the upbeat US Treasury bond yields, backed by mostly firmer United States data and hawkish Federal Reserve (Fed) signals, to defend the soft landing concerns and weigh on the XAU/USD ahead of the key US ISM Services PMI and the final readings of the US S&P Global PMIs for August.

Gold Price weakens on United States soft landing, China concerns

Gold Price declined the most in a month the previous day, pressured by the press time, as the United States soft landing concerns underpin the US Dollar strength. In doing so, the Greenback ignores softer US data while cheering the hawkish Federal Reserve (Fed). Additionally, downbeat concerns about China, one of the world’s biggest XAU/USD customers, also favor the Gold sellers.

On Tuesday, US Factory Orders for July dropped to the lowest since mid-2020 while posting -2.1% MoM figures versus -0.1% expectations and 2.3% previous growth. However, the orders excluding transport rose 0.8% MoM, Shipments of goods stayed firmer and inventories marked the first increase in three months.

Also, Federal Reserve (Fed) Governor Christopher Waller signaled during a CNBC interview that data will drive whether the Fed needs to lift rates again, as well as confirm whether the Fed is done raising rates. The policymaker also added, "Data is looking good for soft landing scenario,” which in turn allowed the US Dollar to remain firmer and drowned the XAU/USD.

Elsewhere, China's Caixin Services Purchasing Managers' Index (PMI) for August dropped to the lowest level of the year with 51.8 figures versus 54.1 prior. While giving the details, Dr. Wang Zhe, Senior Economist at Caixin Insight Group said that the gauges for business activity and total new business remained above 50 for the eighth consecutive month, but both readings were lower than in July.

It’s worth observing that the market’s lack of confidence in the Chinese measures to defend the economy, as well as the recent Sino-American tensions over Taiwan and the US businesses’ discomfort in Beijing, also challenged the market sentiment and put a floor under the US Dollar. On the same line are the latest comments from US Commerce Secretary Gina Raimondo suggesting the continuation of China imposed during President Donald Trump's administration.

That said, China recently announced a slew of quantitative and qualitative measures to defend the economy from losing the post-COVID-19 recovery. On the same line was the news suggesting the ability to avoid default by China’s biggest reality player Country Garden.

Amid these plays, the US Dollar Index (DXY) rose to the highest level since mid-March while tracing the upbeat US Treasury bond yields, which in turn exert downside pressure on riskier assets like equities and commodities.

US data, Federal Reserve signals eyed for further XAU/USD directions

Given the recent US Dollar strength despite downbeat Factory Orders, backed by the hawkish Federal Reserve (Fed) talks, Gold traders should seek more clues to confirm the bearish trend. As a result, today’s US ISM Services PMI for August, expected 52.6 versus 52.7 prior, as well as the final readings of the US S&P Global PMIs for the said month, will be important to track for clear directions. Additionally, headlines about China's growth and the Fed talks will act as extra catalysts for the Gold Price.

Also read: ISM Services PMI Preview: Strength may spook markets, boosting US Dollar

Gold Price Technical Analysis

Gold Price justifies the downside break of the 50-day and 100-day Exponential Moving Averages (EMAs) convergence, around $1,935, as it drops towards a joint of the 200-EMA and 61.8% Fibonacci retracement of the XAU/USD’s February-May upside, close to $1,908.

It’s worth noting that the near 50 levels of the Relative Strength Index (RSI) line, placed at 14, joins the bullish signals on the Moving Average Convergence and Divergence (MACD) indicator to test the Gold sellers and hence suggest a likely rebound from the $1,908 support confluence.

In a case where the XAU/USD remains weak past $1,908, the $1,900 round figure and an ascending support line from late February, near $1,895, will act as the final defenses of the Gold buyers.

On the contrary, a daily closing beyond the stated EMA convergence surrounding $1,935 could trigger a corrective bounce of the Gold Price.

However, the 50% Fibonacci retracement and a four-month-old falling resistance line, respectively near $1,945 and $1,950, could test the XAU/USD before giving them control.

Overall, the Gold Price is likely to witness further downside but the room towards the south appears limited.

Gold Price: Daily chart

Trend: Limited downside expected