Gold Price Forecast: XAU/USD breaks above key resistance, now above $1,700
- Gold gains some positive traction on Monday and breaks above a key price cap.
- A further pullback in the US bond yields turns out to be a key factor benefiting the metal.
- A lower-than-expected Manufacturing ISM reading weighs on the US dollar.
Gold breaks spectacularly higher during the US session on Monday, tearing through a tough ceiling that has capped price action since the middle of September and rallying to above $1,700 at the time of writing.
US dollar weakness on the back of a weaker-than-expected Manufacturing ISM report was the main catalyst for the surge in the yellow metal as it weighed on the value of the US dollar in which gold is denominated. Manufacturing in the US slowed to 50.9 in September, way below estimates of 52.2 and the previous month's reading of 52.8, said the report. It suggests the juggernaut of the US economy is slowing under the weight of higher interrest rates and may persuade the US Federal Reserve (Fed) to start applying the breaks to its aggressive monetary tightening policy trajectory – very much a negative for the US dollar.
The lacklustre manufactruing release will also have dented the risk-on impulse - as depicted by the early strong rally in the US equity markets - which was seen as further contributing to keeping a lid on the safe-haven precious metal.
The focus will now shift to the closely-watched US monthly employment details, popularly known as NFP, due on Friday. The US labour market report will play a key role in further influencing Fed rate hike expectations. This, in turn, will determine the near-term USD price dynamics and provide a fresh directional impetus to gold.
In the meantime, the technical break above the much-tapped cap in the $1,670s suggests gold is undergoing a strong bullish thrust and that the path of least resistaence is higher, at least in the short-term. The 50-day Simple Moving Average at $1,725 is the next important resistance level to the upside. A daily close above the key $1,670 level now looks assured, suggesting this ceiling has been well-and-truly breached for good, and more upside is very likely. A pull-back and retest of the resistance-turned-support could provide the ideal low risk entry opportunity for bulls.
Technical levels to watch
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
