Gold Price Forecast: XAU/USD clings to gains around $1,740, lacks follow-through

Update: Gold managed to regain some positive traction on Wednesday and recover a part of the overnight losses to the lowest level since August 11. The XAU/USD held on to its modest intraday gains through the early European session and was last seen hovering near daily tops, around the $1,740 region. A modest pullback in the US Treasury bond yields kept the US dollar bulls on the defensive and extended some support to the non-yielding yellow metal. However, a solid recovery in the global equity markets could act as a headwind for the safe-haven precious metal.

Apart from this, prospects for an early policy tightening by the Fed might further collaborate to cap the upside for gold. It is worth recalling that the Fed hinted that it will begin rolling back its massive pandemic-era stimulus as soon as November. Adding to this, the so-called dot plot indicated policymakers' inclination to raise rates in 2022. This makes it prudent to wait for a strong follow-through buying before confirming that the XAU/USD has bottomed out in the near term and positioning for any meaningful appreciating move.

Previous update: Gold (XAU/USD) picks up bids to $1,740, up 0.33% intraday while keeping the rebound from early August levels.

The yellow metal dropped to the multi-day low the previous day as the US Dollar Index (DXY) tracked firmer Treasury yields. However, market consolidation amid mixed signals joins cautious mood ahead of the key events to underpin the commodity’s latest swing.

Although the St. Louis Federal Reserve President James Bullard copied the tunes of Fed Chairman Jerome Powell to reiterate the tapering song, fears over US President Joe Biden’s ability to convince Republicans over debt limit extension probe the USD buyers of late. On the same line was China’s waiver of Intellectual Property (IP) for the covid vaccine as well as optimism towards the US economic recovery versus China.

Recently, the global rating agency Fitch follows the global phenomena and cut the dragon nation’s credit rating from CC to C. Also speaking negatively for Chinese investors is the Reuters news that Japan's Government Pension Investment Fund (GPIF) will not invest in yuan-denominated Chinese government bonds due to settlement and liquidity issues.

Furthermore, doubts over Evergrande’s coupon payment and a lack of data/events in China, not to forget the US push to China to cut oil imports from Iran, also confuse the gold traders, helping them consolidate the latest losses.

That said, S&P 500 Futures rise 0.65% intraday, snapping a two-day fall, whereas the US 10-year Treasury yields seesaw around mid-June highs after rising for five consecutive days. Further, the US Dollar Index (DXY) remains sidelined around the 10-month top as the greenback traders seek fresh clues to break the monotony.

Looking forward, scheduled speeches from the Fed and the ECB policymakers will join the headlines concerning the US debt limit and China’s Evergrande to entertain gold traders.

Technical analysis

Gold struggles to pick up amid sluggish MACD and RSI lines, which in turn hints at further weakness towards retesting the two-week-old descending support line, around $1,727.

However, the RSI line can test the oversold region around then, limiting additional downside.

Ignorance of this could direct the quote to the $1,700 threshold before highlighting the yearly trough surrounding $1,687.

Meanwhile, recovery moves need to cross the immediate trend line hurdle near $1,745 before directing gold buyers to a descending resistance line from September 03, near $1,771.

Even if the quote manages to cross the $1,771 resistance line, a horizontal area established from September 08 and 200-SMA, respectively near $1,782 and $1,788, will challenge the metal’s upside.

Overall, gold remains pressured towards the yearly low but intermediate bounces can’t be ruled out.

Gold: Four-hour chart

Trend: Further weakness expected