Gold Price Forecast: XAU/USD clings to gains near $1,765 region, upside seems limited

Update: Gold held on to its intraday gains through the early European session and was last seen hovering near the top end of the daily trading range, just below the $1,865 level. The US dollar witnessed some profit-taking on the last day of the week and eroded a part of the previous day's strong gains to three-week tops. This, in turn, was seen as a key factor that assisted the XAU/USD to gain some positive traction and recover a part of the overnight slump to the lowest level since August 12. A weaker USD tends to benefit dollar-denominated commodities, including gold.

Apart from this, worries about the fast-spreading Delta variant and a global economic slowdown acted as a tailwind for the safe-haven gold. However, expectations for an imminent Fed taper announcement held bulls from placing aggressive bets and kept a lid on any meaningful upside for the non-yielding yellow metal. Thursday's upbeat US Retail Sales data underscored consumer confidence and pointed to the continuation of economic recovery. This, in turn, reinforced market expectations that the Fed would eventually begin rolling back its massive crisis-era stimulus sooner than later.

Hence, the next most important event for gold prices will be the upcoming FOMC meeting on September 20-21. The outcome will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the XAU/USD. In the meantime, any meaningful recovery attempt is more likely to face stiff resistance and remain capped near the $1,780 strong horizontal support breakpoint. The mentioned region marks the previous monthly swing lows and should now act as a key pivotal point for short-term traders.

Previous update: Gold prices heading toward a second weekly losses on Friday. After observing a single-day big fall in the overnight session, prices experience some stabilization near $1,750. A slight downtick in the US dollar backs the recent consolidation in the prices.

The heavy sell-off in gold prices on Thursday was sponsored by the higher US dollar index, which rose to its two-week high above 92.90 following higher-than-expected Retails sales data. Furthermore, investors remained cautious ahead of next week’s US Federal Reserve meeting. The market expects the central bank to provide future guidance on the timeline of its asset purchase program and on eventual interest rate hike.

Earlier in the week, a softer US Consumer Price Index (CPI) cools down the inflationary anxiety helping gold prices to test a one-week high. But higher USD valuations kept the pressure intact for the precious metal. The ETF flows remained weak, the holdings of SPDR GOLD Trust fell 0.2% to 998.46 tonnes on Wednesday.

End of update.

Gold picks up bids to refresh intraday high around $1,758, up 0.20% on a day, licking its wounds during early Friday.

The precious metal dropped the most since August 06 the previous day on escalated chatters over the Fed’s tapering during the next week. The bets for consolidating easy-money policies of the US central bank gained momentum after the US Retail Sales for August and Philadelphia Fed Manufacturing Index for September came in better than expected and prior. That said, The US Retail Sales MoM jumped to the highest in five months while crossing expectations of -0.8% with +0.7% figures. Further, the Philly Fed gauge also rose strongly to 30.7 versus 19 forecast and 19.4 prior, marking the strongest figures in three months.

It should, however, be noted that Reuters’ latest poll of 51 economists pushes back the tapering to the November meeting while citing the inflation concerns. The survey also hints at the Delta covid variant’s downbeat impact on the US Q3 GDP.

Read: Reuters Poll: Delta darkens US Q3 growth views, Fed taper announcement expected in November

In addition to the recently easing taper tantrums, a tweet from Fox News's Chad Pergram also helps the commodity to rebound. “WH says Biden, Pelosi & Schumer talked today by phone about social spending bill,” tweeted the reporter. Before that, Axios came out with the news saying, “President Biden failed to persuade Sen. Joe Manchin (D-W.Va.) to agree to spending $3.5 trillion on the Democrats' budget reconciliation package during their Oval Office meeting on Wednesday.”

On the contrary, the risk-off mood backed by were chatters that the US, the UK and Australia are indirectly challenging China with securities pact and the US hosting of the UK, India, Australia and Japan for diplomatic talks the next week. Additionally, the Sino-American tussles, recently over Taiwan, join the hurricanes that challenge oil firms in the US Gulf to add to the risk-off mood and favor the US dollar’s safe-haven demand. As per the latest updates, the US and Australia issue joint statement showing concerns over the South China Sea claims while conveying readiness to strengthen ties with Taiwan.

Looking forward, headlines relating to the US stimulus, Fed and covid, not to forget China, may entertain gold traders, likely extending the corrective pullback. However, the preliminary reading of the September month US Michigan Consumer Sentiment Index for September, expected 72.2 versus 70 prior, will be the key data to follow today that could help better forecast next week’s Federal Open Market Committee (FOMC) moves.

Read: Fed Preview: Three ways in which Powell could down the dollar, and none is the dot-plot

Technical analysis

Gold prices bounce off a 2.5-month-old broad horizontal support area but keep the previous day’s downside break of an ascending trend line support, now resistance.

With the bearish MACD signals and sustained trading below the key moving averages joining Thursday’s support break, gold bears remain in control unless the quote bounces back beyond the support-turned-resistance near $1,786.

Even so, 50-DMA and 200-DMA, respectively around $1,796 and $1,808, challenges the buyers before directing them to the key horizontal hurdle around $1,834.

Meanwhile, gold sellers may wait for a downside break of $1,750 to take fresh entries targeting $1,738. Following that, $1,717 and the $1,700 may entertain the bears before the yearly bottom near $1,687.

Overall, gold prices portray short-covering moves that are insufficient to recall the metal buyers.

Gold: Daily chart

Trend: Further weakness expected