Gold Price Forecast: XAU/USD rebounds after testing $1,750, eyes $1,775

Update: After managing to close the previous week in the positive territory, gold edged lower during the first half of the day on Monday. However, the XAU/USD pair met support near $1,750 and reversed its direction during the American trading hours on its way to the highest level since September 23 at $1,770. Currently, the pair is up 0.35% on a daily basis at $1,767. The broad-based USD weakness seems to be allowing gold to cling to its gains despite the 1% increase witnessed in the benchmark 10-year US Treasury bond yield. Additionally, gold is also attracting investors as a safe haven with Wall Street's main indexes losing between 1.2% and 2.5% on the day.

Gold struggled to capitalize on last week's goodish rebound from the $1,721 area, or the lowest level since August 10 and witnessed some selling on the first day of a new trading week. The intraday pullback from one-and-half-week tops extended through the early North American session and dragged the commodity back below the $1,750 level in the last hour. Expectations for an early policy tightening by the Fed, along with a solid rebound in the US Treasury bond yields turned out to be a key factor that drove flows away from the non-yielding yellow metal.

Investors seem convinced that the Fed would begin rolling back its massive pandemic-era stimulus as soon as November. Moreover, the markets also seem to have started pricing in the possibility of an interest rate hike in 2022. This, to a larger extent, overshadowed the ongoing US dollar retracement slide from over one year tops and did little to benefit the dollar-denominated gold. That said, the risk-off impulse in the markets could extend some support to the traditional safe-haven precious metal and help limit any deeper losses, at least for the time being.

Worries about the fallout from China Evergrande Group's debt woes, along with the ongoing energy crisis in China and Europe, and concerns about a global economic slowdown tempered investors' appetite for perceived riskier assets. This was evident from a corrective slide in the equity markets, which should act as a tailwind for gold. Investors might also refrain from placing aggressive bets ahead of Friday's release of the closely-watched US monthly jobs report (NFP). This makes it prudent to wait for a strong follow-through selling before confirming that the recent bounce has run out of steam and positioning for a further intraday depreciating move.

Technical outlook

From a technical perspective, any subsequent decline is likely to find decent support near the $1,742-40 horizontal zone. A sustained break below might turn the XAU/USD vulnerable to accelerate the slide back towards the $1,722-21 area. The downward trajectory could further get extended towards the $1,700 mark en-route August monthly swing lows, around the $1,687-86 region.

On the flip side, the $1,754-55 region now seems to have emerged as immediate resistance. Some follow-through buying has the potential to lift spot prices back towards the $1,774-75 region. This is closely followed by the $1,783-84 hurdle, above which bulls are likely to aim back to reclaim the $1,800 round-figure mark. The latter coincides with the very important 200-day SMA and should act as a key pivotal point for short-term traders.

Levels to watch