Gold Price Forecast: XAU/USD drops back below $1,770 on firmer USD

Update: Gold (XAU/USD) consolidates the previous day’s recovery moves to refresh intraday low with $1,767, down 0.20% on a day, during early Thursday. The quarter-end positioning and downbeat US Treasury yields seemed to have triggered the gold’s corrective pullback on Wednesday. However, the escalating coronavirus (COVID-19) fears put a safe-haven bid under the US dollar, weighing on the gold in turn.

After Australia, Indonesia also announces the activity restrictions, a national one from July 02 till 20^th of the month, amid surging virus numbers. Further, the UK also reported the highest infections of 2021.

On the other hand, Japan’s Tankan manufacturing data cite underlying weakness in activities despite upbeat top-line figures. The same dim market’s optimism and weigh on the gold prices.

That said, the US 10-year Treasury yield drops 2.1 basis points (bps) to 1.465% by the press time while the US dollar index (DXY) rises for the fourth consecutive day to print 0.05% intraday gains around 92.40. Even so, S&P 500 Futures remain mildly bid amid Thursday’s Asian session.

Update: Gold (XAU/USD) edges higher around $1,770, after snapping a two-day downtrend, during the initial Asian session on Thursday. The quarter-end positioning and downbeat Treasury yields seem to have contributed to gold’s bounce off a 2.5-month low the previous day. However, hawkish Fedspeak, fears of the coronavirus (COVID-19) and firmer US dollar keep a tab on the commodity’s upside momentum.

US Equities closed mixed and the 10-year Treasury yields dropped 1.2 basis points (bps) to 1.47% but S&P 500 Futures begin July with no major moves after its Wall Street benchmark refreshed record top. As the risk barometers flash mixed signals, coupled with the ongoing contrasting play between the covid headlines, signals of tapering and upbeat US data, gold traders seek fresh cues to justify the latest recovery moves. This highlights the Asian session data, namely Japan’s Tankan Manufacturing gauge for Q2 and China Caixin Manufacturing PMI for immediate direction. Even so, risk catalysts stay in the driver’s seat.

After falling to its lowest level since mid-April at $1,750 on Tuesday, gold managed to stage a decisive recovery on Wednesday and was last seen gaining 0.65% on a daily basis at $1,772.

Despite the broad-based USD strength, the XAU/USD pair didn't have a difficult time pushing higher during the American trading hours with the sharp decline witnessed in the US Treasury bond yields helping gold attract investors. Currently, the benchmark 10-year US T-bond yield is losing nearly 2% on the day at 1.446%.

Additionally, quarter-end flows and rebalancing of large positions may have triggered profit-taking and helped XAU/USD retrace a portion of this week's decline.

Meanwhile, the monthly data published by the Automatic Data Processing (ADP) Research Institute showed on Wednesday that employment in the US private sector increased by 692,000 in June. This reading came in better than the market expectation of 600,000 and provided a boost to the greenback ahead of Friday's Nonfarm Payrolls report. The US Dollar Index, which tracks the USD's performance against a basket of six major currencies, was last seen trading at its highest level in more than two months at 92.41.

In a recently published analysis, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, said gold remains offered below $1,790 and looks to retreat to the key support located at $1,735. 

"While above there we will retain our longer-term upside bias," Jones added. “Longer-term, we still target the $1959/65 November 2020 high and the 2021 high. These guard the $1989/78.6% retracement and the $2072 2020 peak.”

Gold technical outlook

With Wednesday's rebound, the Relative Strength Index (RSI) indicator on the daily chart rose modestly to 35, suggesting that the pair corrected its oversold conditions but doesn't yet have enough bullish momentum for consistent recovery.

On the upside $1,785 (upper limit of last week's consolidation channel) aligns as an interim resistance ahead of $1,790 (100-day SMA) and $1,800 (psychological level, Fibonacci 50% retracement of April-June uptrend).

The initial support is located at $1,750 (June 29 low) ahead of $1,730 (static level).

Additional levels to watch for