Gold Price Forecast: XAU/USD flirts with $1,717 support ahead of US employment data

Gold price (XAU/USD) stays defensive after a two-day downtrend, printing mild losses of around $1,723 by the press time of early Wednesday morning in Europe. In doing so, the metal traders portray the market’s indecision amid mixed clues, as well as a cautious mood ahead of the key US employment data.

While highlighting the risk profile, S&P 500 Futures print mild gains despite Wall Street’s losses but the US 10-year Treasury yields remain intact around the highest levels in two months, close to 3.11% at the latest.

Firmer China PMI should have probed the market bears but the fears surrounding the Fed’s aggression, economic slowdown and the US-China tussles seem to exert downside pressure on the XAU/USD prices. That said, China’s NBS Manufacturing PMI improved to 49.4 in August versus 49.2 expected and 49.0 prior whereas the Non-Manufacturing PMI also grew to 52.6 during the stated month compared to 52.2 market forecasts and 53.8 previous readings.

Alternatively, Taiwan’s firing of the warning shots for 1st time at a Chinese drone, per Reuters, as well as the Wall Street Journal’s news stating that the US Army grounds entire fleet of Boeing-made Chinook helicopters highlight escalating woes. Also challenging the sentiment are the coronavirus fears as mainland China had confirmed 243,081 cases with symptoms as of August 30, per Reuters. The news also mentioned that China's capital Beijing and the financial hub of Shanghai reported one new local symptomatic case each while China's southern technology hub of Shenzhen reported 37 new locally transmitted COVID-19 infections on Tuesday, up from 35 a day earlier.

It should be noted that the firmer US data allowed the Fed policymakers to defend their aggressive bias toward the rate hike.

On Tuesday, US Consumer Confidence for August improved to 103.2 versus 95.3 in July, per the Conference Board’s (CB) latest survey details. Also, US Housing Price Index (HPI) rose by 0.1% MoM in June compared to May's increase of 1.3% and market expectation of 1.1%. Further, the S&P/Case-Shiller Home Price Indices eased to 18.6% YoY during the stated month versus 19.5% forecast and 20.5% previous readings. It should be noted that the US JOLTS Job Openings grew to 11.239M in July versus 10.475M expected and 11.04M prior (revised from 10.698M).

Following the data, Richmond Federal Reserve Bank President Thomas Barkin said, "I don't expect inflation to come down predictably." On the same line was Atlanta Fed President Raphael Bostic who said, “Slowing inflation data 'may give us reason' to slow interest rate hikes.” Recently, New York Fed President John Williams said, per the WSJ, “We are not at restrictive policy yet.” The policymaker also added, “We need to get interest rates higher than longer run a neutral level.”

Moving on, the US ADP Employment Change for August, the early signal for Friday’s US Nonfarm Payrolls (NFP), expected 200K versus 128K prior.

Technical analysis

Gold price prints a falling wedge bullish chart pattern as bears approach the lower line of the wedge, at $1,717 by the press time.

That said, the bearish MACD signals and the sustained downside break of an ascending support line, now resistance around $1,745, keep the XAU/USD bears hopeful.

However, RSI (14) is near the oversold territory and hence signals limited downside room, which in turn suggests a rebound from the $1,717 support.

Should the quote fail to bounce off $1,717 support, the 78.6% Fibonacci retracement level of July-August upside, near $1,707, will precede the $1,700 threshold to restrict short-term XAU/USD downside.

Alternatively, the support-turned-resistance around $1,745 precedes the upper line of the stated wedge, close to $1,750 at the latest, to restrict the short-term downside of gold price.

Following that, the 200-EMA level near $1,760 appears the last defense of bears before challenging the monthly high near $1,808.

Gold: Four-hour chart

Trend: Limited downside expected