Gold Price Forecast: XAU/USD hovers around $1740, post Jackson Hole hawkish rhetoric

Gold price bounced from five-week lows on Monday, amidst a downbeat market mood, after last Friday's hawkish remarks by Federal Reserve Chair Jerome Powell, spurred a fall in equities, propelling the greenback and US Treasury bond yields to fresh weekly highs. At the time of writing, XAU/USD is trading at $1740 slightly above its opening price.

Gold advances in tandem with the greenback

Global equities are trading in negative territory. Since Wall Street opened, the US Dollar Index a gauge of the buck’s value vs. a basket of six peers is almost flat exchanging hands at 108.831, a tailwind for the non-yielding metal, which is up by almost 0.80%, despite climbing US Treasury yields.

Meanwhile, the US 10-year Treasury yield stays edges up almost eight bps, sitting at 3.119%, at a time that market players expect that the US Federal Reserve would hike 75 bps, as shown by the CME FedWatcht tool, with odds lying at 70%.

On Monday, a light calendar keeps market participants reflecting on the Jackson Hole symposium. The US Fed Chair Jerome Powell said that the Fed would increase the rate to restrictive territory and would keep them there “for some time” as the US central bank tries to tame inflation down. Powell acknowledged that growth will slow down, and added that “it will also bring some pain to households and businesses.”

Adding to further central bank hawkish rhetoric, it should be noted that ECB’s members led by Schnabel, Villeroy, Kazaaks, and Rehn, echoed concerns about inflation, with Villeroy stating that a significant rate increase is needed in September, while Kazaaks commented that the ECB should discuss 50 or 75 bps rate hikes. Meanwhile, ECB’s Rehn commented that it’s time for the central bank to act with a weak euro and expect a “significant” interest rate hike.

Therefore, XAU/USD traders should buckle up their seatbelts, as the yellow metal braces for periods of high volatility, with incoming data that could reignite fears of a worldwide recession.

What to watch

The US economic docket will feature the US Consumer Confidence, Fed speakers, the ISM Manufacturing PMI, alongside the US Nonfarm Payrolls report.

Gold Price Forecast (XAU/USD): Technical outlook

From a daily chart, perspective, the XAU/USD is still neutral to downward, biased. Monday’s jump from multi-week lows threatens to form a hammer (a reversal candlestick pattern), signifying that the yellow metal is forming a bottom, before shifting upwards. Hence, if gold buyers reclaim $1770, a test of the $1800 is on the cards. Otherwise, a daily close below Friday’s low of $1734, would pave the way for further losses.