Gold Price Forecast: XAU/USD attempts to hold above $1,800 as USD recovers

Update: Gold prices manage to preserve the previous session’s upside momentum and cling to minute gains above $1,805. The broad-based sell-off in the US dollar pushes the precious metal above the lower levels of $1,782 on Tuesday. 

The US benchmark yields fell to 1.27% following the softer US Consumer Price Index (CPI) data, which rose to 0.1% in August as compared to market expectations of 0.3%. Fed closely watched the readings to assess the economic situation as it could influence the central bank’s tapering ahead of its two-day meeting in the next week. The lower US Treasury yields enhance the appeal of the non-yielding asset. 

However, the persistent coronavirus risk, uneven global economic recovery and cautious stance of major central banks remained the supportive measures for gold prices.

End of update.

Gold has rallied during the American session and is trading at $1,803.75, recording almost a 1% gain. The yellow metal printed a weekly low of $1,780, but as US inflation data hit the wires, the non-yielding asset jumped $20 up, and tested the 200-day moving average (DMA).

The US dollar index weighed by falling US 10-year Treasury yield

The main driver of the non-yielding metal price action is greenback’s weakness. The US dollar index, which measures the buck’s performance against a basket of peers is down to 92.51, recording a 0.10% loss. The US 10-year Treasury yield, which has an inverse correlation with gold, is down four basis points (bps) at 1.280%.

The US Bureau of Labor Statistics announced on Tuesday that the Core Consumer Price Index rose 4% on an annual basis in August, slowing down from 4.3% the previous month. Economists expected a 4.2% increase. 

Questions started to arise about the potential reduction of the Fed’s bond purchasing program. Analysts of JP Morgan securities commented that “Tapering is still imminent and the narrative is still very much that inflation is going to be transitory. We expect these four to five percent prints to moderate back down to more moderate levels by the end of next year.”

XAU/USD Price Forecast: Technical outlook

Gold is trading beneath the 200-day moving average (DMA), lying at $1,809. A decisive daily close above that level could exert upward pressure on the yellow metal price. The first supply zone would be the July 15 high at $1,834, unsuccessfully tested three times over the last months. A break above the latter would open the way for further upside towards the June 1 high at $1,916. 

On the flip side, failure at $1,809 could pave the way for further losses. The first support level would be $1,800. Once that level is broken, the next stop would be the August 19 low at $1,774.21. A sustained breach of that swing low could expose the next demand areas at the August 10 low at $1,717.78 and the August 9 low at $1,677.69.

The Relative Strength Index is at 52.34, aiming higher, supporting the bullish bias.