Gold Price Forecast: XAU/USD rebound appears frail below $1,910, PMI in focus

Gold Price (XAU/USD) portrays an upward grind around the $1,900 threshold, approaching the $1,910 resistance confluence, as market players brace for multiple central bankers’ speeches at the annual Jackson Hole Symposium event.

The precious metal remains cautiously positive after posting minor gains in the last two consecutive days even as the US Dollar remains firmer amid upbeat United States data and the hawkish commentary from the Federal Reserve (Fed). Adding strength to the recovery moves could be the mixed geopolitical and trade concerns, as well as positioning for Wednesday’s preliminary readings of the August month Purchasing Managers Indexes (PMIs) for major economies.

Gold Price drops as US Dollar traces firmer Treasury bond yields

Gold Price returns to the bear’s radar, after the week-start failure to lure the bulls, as the US Dollar regains buyer’s attention amid firmer United States data, hawkish Federal Reserve (Fed) talks and upbeat Treasury bond yields.

US Dollar Index (DXY) prods the 10-week high marked Friday, around 103.60 at the latest, as improvements in the US Existing Home Sales for July and the Richmond Fed Manufacturing Index for August joins firmer Treasury bond yields.

That said, the US Existing Home Sales came in as -2.2% MoM versus -3.3% prior while the Richmond Fed Manufacturing Index matched -7.0 market forecast compared to -9.0% previous readings.

Apart from the firmer US data, hawkish statements from Federal Reserve Bank of Richmond President Thomas Barkin also underpin the US Dollar’s rebound and weigh on the Gold Price. On Tuesday, Fed’s Barkin emphasized achieving the 2.0% inflation target while challenging the US recession concerns by stating, per Reuters, “If the US were to have a recession, it would likely be a ‘less-severe’ one.” The policymaker also added, “Fed must be open to the possibility that the economy will begin to reaccelerate rather than slow, with potential implications for the US central bank's inflation fight.”

It’s worth noting that the expectations of witnessing strong wage growth in the US, per the Federal Reserve Bank of New York’s SCE Labor Market Survey, also favor the US Dollar’s retreat and capped the Gold Price.

It’s worth noting that the US 10-year Treasury bond yields rose to the highest level since late 2007, before retreating to 4.33% and hence flags the market’s indecision, which in turn challenges the XAU/USD traders.

China, Dedollarization exert additional downside pressure on XAU/USD

Apart from the US Dollar moves, the mixed concerns about China, dedollarization and Russia also prod the Gold Price.

On Tuesday, Bloomberg came out with an analytical piece suggesting the market’s lack of confidence in China’s efforts to restore economic transition.

Alternatively, the latest headlines from Reuters suggest the US-China talks on businesses and commercial ties, which in turn flags hope of pausing the tit-for-tat moves by the world’s top-two economies, which in turn puts a floor under the Gold Price.

Further, news from Russian media claimed Moscow’s destruction of a US-made military vessel near Snake Island, which in turn triggered the risk-off mood initially before restoring the sentiment amid concerns that the vessel was operating under a US flag.  

However, concerns about the dedollarization at the BRICS Summit, currently held in South Africa to facilitate diplomatic discussion among Brazil, Russia, India, China and South Africa, gain little acceptance from India and South Africa, which in turn favors sentiment. The same keep the US Dollar on the front foot, favoring the Gold bears in turn.

August PMI in the spotlight ahead of Jackson Hole

To sum up, the firmer US Dollar and challenges to sentiment keep the Gold sellers hopeful as market players await the preliminary readings of the August month Purchasing Managers Indexes (PMIs) for major economies. Should the activity numbers improve, the odds of witnessing a sooner end to the restrictive monetary policies increase, which in turn challenge the Gold sellers.

That said, the US S&P Global Manufacturing PMI is likely to improve to 49.3 from 49.0 but the Services counterpart may edge lower to 52.2 versus 52.3 prior. As a result, the
S&P Global Composite PMI is expected to reprint the 52.0 number and can let the current Gold Price weakness prevail.

It’s worth noting, however, that Friday’s Jackson Hole Symposium is the key event that can offer clear directions to the Gold Price.

Also read: Jackson Hole Preview: Powell poised to keep markets on edge, three scenarios for the US Dollar

Gold Price Technical Analysis

Gold Price fades the bounce off a multi-month low marked the last week amid failures to cross the convergence of 200-DMA and 61.8% Fibonacci retracement of February-May upside, around $1,910 by the press time. That said, the bearish signals from the Moving Average Convergence and Divergence (MACD) indicator add credence to the downside bias.

However, the nearly oversold conditions of the Relative Strength Index (RSI) line, placed at 14, suggests limited room towards the south for the XAU/USD, which in turn highlights a downward-sloping support line from late June, close to $1,880 by the press time.

In a case where the Gold Price breaks the stated support line, the early March swing high of around $1,858 will act as the last defense of the XAU/USD buyers before directing the bullion toward the yearly low surrounding $1,805.

Meanwhile, a successful run-up beyond the $1,910 resistance confluence enables the Gold buyers to aim for the 50-DMA hurdle of around $1,935.

Following that, a downward-sloping resistance line from early May, close to $1,950 at the latest, should check the Gold buyers for one last time.

Overall, the Gold Price remains on the back foot unless crossing $1,950. The XAU/USD downside, however, appears to have limited room.

Gold Price: Daily chart

Trend: Further downside expected