Gold Price Forecast: XAU/USD recoils from five-month low around sub $1,700 level

Update: Gold prices find no respite on Monday, as slump below $1,700 for the first time in the last five-month period on a splendid US dollar recovery. The US Dollar Index extends its movement in the upward trajectory following the upbeat US labor report, which showed nonfarm payrolls (NFP) rose to 943K, beating the market expectations of an 870K increase. Investors assess the readings as a signal for the case for a faster US policy tightening. The US Treasury yields soar to 1.30% on rate hike expectations after the stronger job data. Higher US Treasury yields inversely affect the non-yielding asset. The precious metal came under heavy selling pressure on higher USD valuations and on reversal in the bond yields. Gold prices were already struggling after the hawkish comments made by the US Federal Reserve Vice Chair Richard Clarida in the previous week.

Gold (XAU/USD) breaks the choppy range surrounding $1,760, taking offers around $1,755, during the initial Asian session on Monday, after declining the most since mid-June the previous day. The precious metal dropped heavily on Friday, to six-week lows, following the US employment data. Also weighing on the yellow metal could be the latest covid and stimulus updates.

Although the early signals for the key jobs report were sluggish, the US Bureau of Labor Statistics renewed optimism with July month’s figures. As per the latest data, the headline Nonfarm Payrolls (NFP) jumped 943K versus 938K prior (revised from 850K), also crossing the market expectations of 870K. Further, the Unemployment Rate declined to 5.4% from 5.9% in June and the Labor Force Participation Rate improved modestly to 61.7%.

With the firmer employment data underpinning the US economic recovery hopes, which earlier faded, the US Dollar Index (DXY) rose the most in 18 days on Friday. Also favoring the greenback were chatters surrounding the Fed’s tapering and infrastructure spending talks in the Senate.

The US policymakers are at the loggerheads over President Joe Biden’s 1.0 trillion stimulus plan despite initially agreeing over the plan. The latest updates from Reuters said, “The Senate convened at noon EDT (16:00 GMT) and was expected to hold two procedural votes on Sunday evening, unless Republicans and Democrats can reach an agreement on amendments to the package that was the result of months of bipartisan talks.”

Elsewhere, the Delta covid variant keeps firming its grips in the developed economy and poses a serious threat to the market sentiment, likely favoring the US dollar’s safe-haven demand. The recent covid update from the US, per Reuters, said, “New daily coronavirus cases in the United States have hit a six-month high, with the seven-day average reaching nearly 95,000. That rate is five times higher than it was less than a month ago.”

It should be noted that the weekend numbers for China’s trade were mixed but the virus fears escalate in the Dragon nation.

Amid these plays, S&P 500 Futures drop 0.06% after mixed Wall Street close whereas the US 10-year Treasury yields seesaw around 1.30% after rising the most in five months on Friday.

Given the light calendar in Asia, gold traders will keep their eyes on the risk factors while waiting for China’s headlines inflation data. Forecasts suggest the YoY figures are likely to ease wherein the headline Consumer Price Index (CPI) data for MoM could reverse -0.4% prior with +0.2% figures. That said, the Producer Price Index (PPI) may remain unchanged at 8.8% YoY whereas the CPI is expected to ease from 1.1% to 0.8% on YoY.

Should China’s inflation numbers ease more than expected, the market’s rush to the risk-safety may add more strength into the US Dollar Index (DXY) and can negatively affect gold prices.

Technical analysis

Gold stays below the previous support line from June-end, not to forget keeping 100-DMA downtrend amid bearish MACD, which in turn suggests the metal further weakness.

Hence, a horizontal area comprising multiple levels marked since March 18, around $1,750, lures the gold bears, at least for now.

Following that, the mid-April lows near $1,723 and the $1,700 threshold can entertain the sellers before directing them to the yearly bottom surrounding $1,676.

Meanwhile, recovery moves remain dismal unless crossing the resistance-turned-support line, near $1,783, a break of which will highlight a 100-DMA level of $1,805 for the bulls.

It should be noted, however, that gold’s recovery moves past $1,805 need to surpass July’s high near $1,835 to convince bulls.

Gold: Daily chart

Trend: Further weakness expected