Gold Price Forecast: XAU/USD holds steady near $1,800, upside seems limited

Update: Gold traded with a mild positive bias through the mid-European session, albeit continued with its struggle to find acceptance or build on the momentum beyond the $1,800 round-figure mark. The US dollar extended its retracement slide from one-week tops touched on Wednesday, which, in turn, was seen as a key factor that benefitted the dollar-denominated commodity. However, a combination of factors held traders from placing aggressive bullish bets around gold and kept a lid on any meaningful upside.

The risk-on impulse – as depicted by a strong rally in the equity markets – acted as a headwind for the traditional safe-haven XAU/USD. The global risk sentiment got a boost on news that US President Joe Biden and Chinese leader Xi Jinping spoke for the first time in seven months. Apart from this, a strong rebound in the US Treasury bond yields, along with expectations for an imminent Fed taper announcement capped gains for the non-yielding gold.

Investors now seem convinced that the Fed will begin rolling back its massive pandemic-era stimulus sooner rather than later amid signs of confidence in the labour market. The US Weekly Initial Jobless Claims released on Thursday provided further evidence that a sharp slowdown in hiring during August was due to labour shortages rather than weak demand for workers. This, along with hawkish comments from several Fed officials, continued fueling market speculations.

The fundamental backdrop seems tilted in favour of bearish traders, though worries about the fast-spreading Delta variant, so far, has helped limit the downside for gold. This makes it prudent to wait for some strong follow-through selling before confirming that the recent strong rebound from the $1,686 region has run out of steam and positioning for further losses. Market participants now look forward to the release of the US Producer Price Index for some impetus.

Previous update: Gold (XAU/USD) bulls attack $1,800, up 0.25% intraday near $1,799 heading into Friday’s European session. In doing so, the yellow metals cheer recently positive market sentiment to extend the previous day’s rebound from a fortnight low.

Following the cautious optimism from US President Joe Biden, during his six-pronged strategy speech, the first in seven months talks between Biden and his Chinese counterpart Xi Jinping brightened the mood.

Details suggest that the US side refrains from being too optimistic and term talks as ‘a broad, strategic discussion’. On the other hand, Chinese media said, “Xi and Biden had a candid conversation on US-China ties.”

It should be noted that Biden’s push for vaccinations and masks join the UK’s approval for booster shots of the covid vaccines to add to the market’s slightly positive mood.

On the same line were cautious optimism conveyed by the policymakers of the US Federal Reserve (Fed) and the European Central Banks (ECB) in their latest public appearances. Adding to the market’s optimism was the reduction in the US Weekly Jobless Claims, 310K versus 335K expected.

Amid these plays, the US 10-year Treasury yields rise 1.1 basis points (bps) to regain 1.31% level whereas the stock futures rise 0.10% by the press time.

Moving on, the US Producer Price Index (PPI) data for August, expected 0.6% MoM versus 1.0% prior, will be important to watch for intermediate direction. However, the ECB’s passage and an absence of major data/events can keep market players directed towards the risk catalysts for fresh impulse.

Technical analysis

Gold keeps the rebound from a two-week bottom but the MACD teases bears and the Momentum line also challenges further upside.

Above all, a convergence of 100-day and 200-day EMA around $1,805 offers a strong resistance to test the gold buyers.

Even if the metal crosses the $1,805 hurdle, a horizontal area from mid-July near $1,834-35 will be a tough nut to crack for the bulls.

Hence, bears can stay hopeful and keep 38.2% Fibonacci retracement of June-August fall, around $1,775, as a short-term target.

However, a daily closing below $1,775 will make gold prices vulnerable to decline towards June’s low of $1,750.

Overall, gold bulls need to remain cautious unless the quote crosses $1,834.

Gold: Daily chart

Trend: Pullback expected