Gold Price Forecast: XAU/USD retreats above $1,800 on greenback strength

Update: Gold (XAU/USD) holds lower ground near $1,812 ahead of Monday’s European session. The yellow metal’s latest pullback could be traced to the market’s rush to risk-safety amid the coronavirus (COVID-19) woes in Asia-Pacific nations. Also weighing on the market sentiment, putting a safe-haven bid under the US dollar and dragging gold, could be the indecision over the Fed’s next moves. This could well back the Financial Times (FT) piece suggesting that the bullish bets on the US Dollar Index (DXY) jump to the highest in over a year.

Given the light calendar day ahead, headlines concerning the Delta variant of the covid, mainly from the UK and Australia, will be the key to watch for fresh impulse.

Read: The Week Ahead - ECB rate decision, UK retail sales, easyJet, Royal Mail, Netflix results

Gold is starting off the day flat and where it left off from Friday at around $1,810.

The gold price on Friday ended down 0.94%, falling from a high of $1,832.06 to a low of $1,809.03 while the US dollar eked out a slight gain following an upbeat Retail Sales report.

The dollar index DXY, which measures the greenback against a basket of six currencies, was ending 0.16% higher at 92.712. The index is up 0.6% for the week.

US Retail Sales unexpectedly rose in June as demand for goods remained strong.

Solid data and a shift in interest rate expectations after the Federal Reserve flagged in June sooner-than-expected hikes in 2023 have contributed to the strength in the greenback in recent weeks. 

Investors, for now, are seeking carry and considering that gold does not hold a similar carry advantage, speculative flows into precious metals have remained subdued.

Gold's persistent weakening against real yields could see the complex weaken before the pricing for Fed hikes supports higher prices.

That being said, the carry-fx space is not seeing much love. 

The recent increase of concerns over the spread of the delta variant is hurting risk appetite which could fall into the hands of both the price of gold and the US dollar. 

• COVID spread weighing on market's risk appetite

Gold positioning

''Money managers only marginally increased their gold length, despite sinking real yields in the US'', analysts at TD Securities explained.

''Indeed, gold prices are still struggling to firm, in spite of the extremely positive price action in real yields which sent US10y TIPS prices back towards their pandemic-era highs,'' the analysts added.

''In contrast, the yellow metal can't manage to break north of its 200dma. This highlights a sharp divergence in capital flows as high inflation prints have kept breakevens elevated, primarily as a function of carry.''

Gold technical analysis

Technically, gold's breakout from its recent trading range may be attracting some interest from technicians, but it has recently taken a turn for the worst:

 However, only a break below the 1,800 thresholds would likely upset the bulls. 

Update: Gold price is licking its wounds near $1810 after Friday’s $17 drop from weekly highs of $1834. Friday’s tumble came in on the back a broadly stronger US dollar after mixed economic data refueled concerns over the pace of the economic recovery in the world’s largest economy. Mixed signals from Fed Chair Jerome Powell on the monetary policy during the last week also helped the greenback.

Despite the uptick in gold price, a correction remains well in place after it closed the week well below the critical 200-Daily Moving Average (DMA) at $1825. So far this Monday’s trading, the risk-off mood remains at full steam, thanks to the mounting concerns over the highly contagious Delta covid strain, which has boosted the flows into the US bonds and gold at the expense of the Treasury yields. However, it remains to be seen if the gold price recovery could extend ahead, as the safe-haven demand for the US dollar remains on the rise, with the S&P 500 futures losing 0.50% amid covid woes and a quiet start of a new week.