Gold Price Forecast: XAU/USD retreats towards $1,750 as risk-aversion precedes NFP

Gold price (XAU/USD) extends pullback from the nearly three-month-old resistance line as it drops to $1,773 during Tuesday’s initial European session. Even so, the precious metal prints a five-day uptrend around the highest levels since  July 05.

The metal’s early-day run-up could be linked to the broad US dollar weakness while tracking the Treasury yields. However, headlines surrounding China and escalating fears of the economic slowdown appeared to have pressured the XAU/USD prices afterward.

That said, US House Secretary Nancy Pelosi’s visit to Taiwan and the likely hardships for Chinese chipmakers due to the American consideration of limiting shipments of American chipmaking equipment also weigh on the market sentiment. On the same line could be the news from a Chinese media report suggesting the dragon nation’s readiness for a military drill in Bohai, South China Sea.

Furthermore, Bloomberg’s piece signaling no hard boundaries for Beijing’s Gross Domestic Product (GDP) also appears to weigh on the market’s risk appetite. The news quotes people familiar with the matter as said, “China's top leaders told government officials last week that this year's economic growth target of "around 5.5%" should serve as guidance rather than a hard target that must be hit.”

It should be noted that China is among the world’s top gold consumers and negative headlines surrounding the same could weigh on gold prices.

Elsewhere, the recently disappointing US PMIs tracked the last week’s US Q2 Gross Domestic Product (GDP) to portray economic fears. Also weighing on the mood could be Fed Chair Jerome Powell’s indirect signals that the hawks are running out of steam.

While portraying the market’s sentiment, shares in the Asia-Pacific zone and the US stock futures print mild losses. However, US 10-year bond coupon declines 5.5 basis points (bps) to 2.55% at the latest and challenges the gold bears, by way of the US dollar weakness. That said, the US Dollar Index (DXY) refreshed the monthly low before bouncing off 105.00.

Looking forward, headlines surrounding China and the recession, as well as speeches from Chicago Fed President Charles L. Evans and President of the Federal Reserve Bank of St. Louis James Bullard will be important for intraday traders of gold.

Technical analysis

Gold price justifies the strength of a downward sloping resistance line from April 18 as the quote retreats to $1,773 after refreshing the monthly high near $1,780.

That said, the bullish MACD signals and the firmer RSI (14), not overbought, appear to favor the XAU/USD bulls targeting the metal’s run-up beyond the immediate trend line hurdle surrounding $1,780.

It’s worth noting that May’s low near $1,787 and the 50-DMA level near $1,794 could also challenge the short-term gold buyers.

On the flip side, an upward sloping support line from July 21, close to $1,741 by the press time, precedes the 21-DMA support near $1,733 to restrict the bullion’s short-term downside.

Overall, the gold price is likely to witness further upside even if the room to the north appears a shorter one.

Gold: Daily chart

Trend: Further upside expected