Gold Price Forecast: XAU/USD remains capped below 21-DMA amid risk-on mood

• Gold edges higher following the rebound from weekly low.
• Hopes of US debt ceiling extension, improving Sino-American relations underpin market optimism.
• Hidden bearish divergence assent broad downtrend ahead of the key US NFP.
• Gold and silver: Your financial main battle tanks

Update: Gold price is consolidating the previous recovery above $1760, as the bulls contemplate the next move amid the return of risk appetite. Russia stepping in to ease the energy crisis and a likely US debt ceiling extension have helped lift the pressure off the markets, weighing on the safe-haven US dollar while supporting gold. However, the upbeat US ADP jobs data has sealed in the Fed’s tapering expectations for November, keeping the US Treasury yields elevated, capping the rebound in gold price.

Looking ahead, it remains to be seen if gold price manages to recapture the 21-Daily Moving Average (DMA) at $1765 to unleash the additional recovery gains. Meanwhile, the $1748-$1746 area is the level to beat for gold bears. Friday’s US NFP data is eagerly awaited for a fresh direction in gold price.

 

Gold (XAU/USD) cheers improvement in the market sentiment, firmer around $1,763 during Thursday’s Asian session. The yellow metal refreshed weekly low before bouncing off $1,746 the previous day.

The rebound takes clues from hopes of US debt filibuster passage after reports suggested that the Senate Republican Leader Mitch McConnell is in favor of a short-term stretch, till December, to the debt limit. The Republicans earlier were ignoring US Treasury Secretary Janet Yellen’s warning of empty pockets by October 18 if there is no agreement by then. It should be noted, however, that the White House awaits a formal offer by Republicans to assent move, which in turn can offer another push to the market optimism.

Also on the risk-positive side could be the updates concerning the US-China relations. Chinese media portrays recently positive relations between the US and China, per the latest communications between US President Joe Biden and his Chinese counterpart Xi Jinping.  Biden and Xi Jinping previously respected the Taiwan agreement and chatters are also loud that they meet, virtually, by the year-end. Furthermore, the US also considered exclusion request for China imports, which is under public preview. Though, comments from Secretary of State Antony Blinken, relating to China’s action over the Taiwan issue and a push to act responsibly in matters relating to Evergrande poke the optimism.

It’s worth noting that a three-month high US ADP Employment Change, 568K versus 340K prior, for August favored hawkish expectations from this Friday’s US Nonfarm Payrolls (NFP) and helped the US Dollar Index (DXY), weighed on the gold prices before the recovery moves.

Amid these plays, S&P 500 Futures track Wall Street gains while the US 10-year Treasury yields stepped back after refreshing the highest levels since June 17. Further, the DXY also eased following its uptick challenging the yearly high marked in September.

While the latest risk-on mood can help the gold prices remain firmer, the bearish technical signals and chatters surrounding the Fed tapering highlights today’s US Jobless Claims and Fedspeak for fresh impulse ahead of Friday’s key jobs report. It’s worth mentioning that the headlines surrounding US stimulus and debt ceiling, coupled with European gas price and China, could also entertain the traders.

Technical analysis

Gold stays inside a three-week-old descending triangle. However, a hidden bearish divergence, comprising lower highs of the quote and higher highs of RSI, assents the downtrend.

However, a clear break of the $1,745 triangle support becomes necessary for the bears to take fresh entries.

Following that, September’s low surrounding $1,721 and the $1,700 threshold may entertain the bears before directing them towards the yearly bottom near $1,687.

Alternatively, an upside break of the triangle’s resistance line, close to $1,768, could trigger a short-term recovery targeting the $1,800 mark.

Even so, the mid-September swing high around $1,808 could probe the gold buyers before confirming the trend reversal.

Overall, gold remains in a bearish trend, backed by the hidden bearish divergence, but a short-term bounce can’t be ruled out if it manages to cross the bullish triangle formation.

Gold: Daily chart

Trend: Further weakness expected