Gold Price Forecast: XAU/USD flirts with weekly tops around $1,780, focus remains on FOMC

Update: Gold traded with a mild positive bias through the early European session and was last seen hovering near around the $1,778 region, just below weekly tops touched in the previous day. A subdued US dollar price action seemed to be the only factor that extended some support to the dollar-denominated commodity. That said, the risk-on impulse in the markets acted as a headwind for traditional safe-haven assets and failed to assist the XAU/USD to make it through the 200-hour SMA barrier. The global risk sentiment got a strong lift after struggling property giant China Evergrande said it would pay some bond interest due on Thursday.

Apart from this, expectations for an imminent Fed taper announcement further collaborated to keep a lid on any meaningful gains for the non-yielding yellow metal. Hence, the market focus will remain on the outcome of a two-day FOMC policy meeting on Wednesday. Investors will look for clues about the likely timing of when the Fed would being rolling back its massive pandemic-era stimulus. This, along with the latest economic projections and the so-called dot plot, will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to gold. This makes it prudent to wait for some follow-through buying before confirming that the recent pullback from the $1,832-34 region has run its course and placing fresh bullish bets.

Previous update: Gold prices print minute gains on Wednesday and lack conviction to break $1,780 convincingly due to a sudden uptick in the greenback following a show from the Bank of Japan (BOJ).

The US Dollar Index, which tracks the performance of the greenback against the basket of six major currencies, remains strong above 92.20, while US benchmark 10-year Treasury yields record another session of gains ahead of the crucial FOMC meeting.

The Bank of Japan (BOJ) left its key short-term interest rate unchanged at -0.1% and the bond yield target at around 0% during its September meeting. The economic view pointed out the bleak employment and income situation due to the COVID-19 pandemic. 

Now Investors turn their attention to the Fed's two-day meeting, which is due to conclude on Wednesday as they focus on new signals on the tapering timeline. The US central bank is also likely to provide an outlook on interest rate hikes.

Gold is generally considered a hedge against inflation and currency volatility. A Hawkish move by the Federal Reserve would diminish gold’s appeal. If the Fed increases rate hike in its monetary policy meeting that would also raise the opportunity cost of holding the non-interest-bearing asset.

 Technical levels

Gold prices have rebounded from the 61.8% Fibonacci retracement, which is extending from the low made on September 9 at $1,687.78 to $1,754. 

XAU/USD daily chart

The Moving Average Convergence Divergence (MACD) holds below the midline  with a neutral stance . Any downtick in the MACD indicator would confirm the downside momentum and the prices would approach toward the $1,750 horizontal support level.

A daily close below Monday low could trigger a fresh round of selling in the precious metal. XAU/USD bears would target the low of August 11 at $1,724.

Alternatively, the formation of a Doji candlestick suggests indecisiveness among traders at the upper level. If prices reverse direction then the first upside target would appear at  the 38.2% Fibonacci retracement level at $1,785.

XAU/USD additional levels