Gold Price Forecast: XAU/USD retreats towards $1,920, China, Fed concerns in the spotlight

Gold Price (XAU/USD) edges lower to $1,950 after a softer start to the week, despite a sluggish one due to the United States holiday, as market sentiment appears souring while the Federal Reserve (Fed) signals have been hawkish of late. Furthermore, indecision about the US-China ties and a light calendar also exert downside pressure on the XAU/USD.

Gold Price drops on downbeat sentiment, hawkish Federal Reserve clues

Gold Price began the trading week on a negative foot, after snapping a two-week uptrend in the last, as the risk appetite weakens amid fears of economic slowdown in the global economy, led by hawkish monetary policies at the major central banks and dismal economics. Also challenging the sentiment were mixed concerns about the US-China tussles over Taiwan, despite the recently upbeat talks.

While the Federal Reserve (Fed) paused rate hike trajectory in the last week, the monetary policy report to the US Congress and the latest comments from the officials have been hawkish. That said, the Fed policy report for Congress said, “Inflation in the US is well above target and the labor market remains very tight,” as per Reuters, which in turn put a floor under the US Dollar Index (DXY) and weighs on the Gold Price. Among the Fed talkers, Richmond Fed President Thomas Barkin, Chicago Fed President Austan Goolsbee and Federal Reserve Governor Christopher Waller also appeared a bit hawkish and helped the DXY to reverse from a multi-day low.

On the other hand, US Secretary of State Antony Blinken recently met China President Xi Jinping and Beijing’s top diplomat Wang Yi. After the meeting, China President Xi Jinping said that he hopes through the visit, Blinken will make more positive contributions to stabilizing US-Sino relations. The same restricted the Gold Price downside as China is one of the world’s biggest Gold consumers. However, China’s top diplomat Wang Yi said on Monday, “China has no room for compromise and concessions on the Taiwan issue,” Ahead of that, the diplomats held what both called candid and constructive talks on their differences from Taiwan to trade but seemed to agree on little beyond keeping the conversation going.

It should also be noted that the South China Morning Post (SCMP) quoted China State Council while saying, “The Council considered a batch of macroeconomic policies designed to expand ‘effective demand’, strengthen the real economy and defuse risks in key areas.” The same signals more stimulus from the “Dragon Nation” and more XAU/USD demand. However, multiple top-tier investment banks cut China’s growth forecasts and roiled the optimism afterward.

Amid these plays, markets in the Asia-Pacific region and Europe marked mild losses whereas the yields in the EU and the UK both rose, suggesting an upbeat start for the US bond yields as they begin the key week.

Moving on, the People’s Bank of China’s (PBoC) Interest Rate Decision can entertain Gold traders amid hopes of a rate cut, after the last week’s moves of cutting the lending rates. The same may help the XAU/USD to grind higher. However, the return of the full markets and likely multiple speeches from the Federal Reserve (Fed) and the European Central Bank (ECB) officials may renew hawkish central bank concerns and may weigh on the Gold Price. Above all, this week’s Fed Chair Jerome Powell’s Testimony is the key to watching for clear directions of the XAU/USD.

Gold Price technical analysis

Gold Price fades bounce off a three-week-old falling support line, retreating from the 200-bar Exponential Moving Average (EMA), as the bear cross looms on the Moving Average Convergence and Divergence (MACD) indicator. Adding strength to the hopes of the XAU/USD pullback could be the steady Relative Strength Index (RSI) line, placed at 14.

It’s worth noting that multiple levels marked since May 25 restrict the short-term downside of the Gold Price near $1,940-37 before directing the XAU/USD bears to the aforementioned support line of around $1,922.

Following that, the $1,900 round figure can act as the last defense of the Gold buyers.

Meanwhile, the Gold Price recovery isn’t guaranteed on an upside break of the 200-EMA, around $1,967 at the latest, as a month-long horizontal region around $1,985 appears a tough nut to crack for the XAU/USD buyers.

In a case where the Gold Price remains firmer past $1,985, the $2,000 round figure and $2,020-25 zone will gain the XAU/USD bull’s attention.

Overall, the Gold Price remains vulnerable to further downside as the full markets return.

Gold Price: Four-hour chart

Trend: Limited downside expected