Gold Price Forecast: XAU/USD clings to gains above $1760 amid dollar pullback, US inflation eyed

Update: Gold is wavering in a narrow range above $1760, posting small gains so far this Wednesday. Gold bulls catch a breather heading into the US inflation and FOMC minutes showdown. Despite the cautious market mood, the US dollar corrects from yearly highs against its main peers, as investors prune their USD long positions after the recent surge and ahead of the key event risks. Hotter US inflation will further fuel the Fed’s tightening expectations, which could likely bode ill for the non-interest-bearing gold. The Fed September meeting’s minutes will be also closely followed for fresh hints on the next policy action from the world’s largest central bank.

Meanwhile, gold price continues to draw support from rising stagflation concerns, especially in light of the International Monetary Fund’s (IMF) downward revision to the 2021 global growth forecasts.

Read: US CPI Sept Preview: Inflation averaging, what inflation averaging?

Gold edged higher for the second consecutive session on Wednesday, albeit lacked follow-through and remained below the overnight swing highs. Currently trading just above the $1,760 level, a modest US dollar weakness was seen as a key factor that extended some support to the dollar-denominated commodity. Apart from this, the prevalent cautious market mood – amid concerns about the return of stagflation – further acted as a tailwind for the safe-haven precious metal. Investors remain worried that the recent widespread rally in commodity prices will stoke inflation and derail the global economic recovery.

Meanwhile, a slight USD pullback lacked any obvious fundamental catalyst and seems cushioned amid expectations that the Fed will begin tapering its bond purchases in November. The markets have also started pricing in the possibility of a Fed rate hike in 2022 to counter the risk of inflation becoming too high. This was evident from elevated US Treasury bond yields, which should help limit any meaningful USD downside and hold traders from placing aggressive bullish bets around the non-yielding gold. Investors now await the release of US consumer inflation figures to gauge the Fed's path on normalizing monetary policy.

This will be followed by the FOMC monetary policy meeting minutes, later during the US session. A stronger CPI print and (or) a more hawkish Fed could bring additional gains for the US currency and provide a fresh directional impetus to gold prices. In the meantime, the broader market risk sentiment, along with the US bond yields will be looked upon for some short-term trading opportunities around the commodity.

Technical levels to watch

From current levels, the overnight swing highs, around the $1,769-70 region, might continue to act as immediate strong resistance. Some follow-through buying has the potential to lift gold back closer to the $1,783-84 horizontal barrier. A sustained strength beyond should allow bulls to aim back to reclaim the $1,800 round-figure mark.

On the flip side, the $1,750 area has emerged as immediate strong support. A convincing break below might prompt aggressive technical selling and accelerate the slide towards September monthly swing lows, around the $1,722-21 region. Gold could eventually drop to test the $1,700 mark en-route August monthly swing lows, around the $1,687 region.