Gold Price Forecast: XAU/USD slides further below $1,800 mark, downside seems limited

Gold added to its intraday losses and weakened further below the $1,800 mark during the early North American session. The XAU/USD has now reversed a major part of the previous day's positive move back closer to six-week tops and was last seen flirting with the 100/200-day SMA confluence resistance breakpoint. The dominant risk-on mood in the markets was seen as a key factor that dented demand for traditional safe-haven assets and exerted some pressure on the safe-haven precious metal.

Meanwhile, the latest leg of a sudden drop over the past hour or so could be attributed to a modest US dollar strength, which tends to undermine dollar-denominated commodities, including gold. The USD drew some support from elevated US Treasury bond yields, bolstered by the prospects for an early policy tightening by the Fed. The markets have been pricing in the possibility of a potential interest rate hike in 2022 amid worries about a faster than expected rise in inflationary pressures.

However, a combination of factors should hold traders from placing aggressive bearish bets around the XAU/USD and limit any deeper losses, at least for the time being. The latest COVID-19 outbreak in China has raised fears about the imposition of economically damaging lockdowns. Against the backdrop of the recent power shortages in China, this could lead to production stoppages/shortages of products down the supply chain and derail the global economic recovery. This, in turn, should continue to act as a tailwind for the gold prices ahead of this week's key event/data risks.

The Bank of Japan and the European Central Bank (ECB) are scheduled to announce their policy decision on Thursday. Neither of the central banks is anticipated to announce a change in the policy stance, though warn about a faster than expected rise in inflation. Beyond this, the market focus will be on the release of the Advance US Q3 GDP growth report, which will set the tone heading into the FOMC policy meetings next week and infuse some volatility around gold.

In the meantime, traders on Tuesday will take cues from the US economic docket – featuring the releases of the Conference Board’s Confidence Index, Richmond Manufacturing Index and New Home Sales. Apart from this, the US bond yields, the USD price dynamics and the broader market risk sentiment should assist traders to grab some short-term opportunities around gold.

Technical outlook

From a technical perspective, gold, so far, has managed to defend the 100/200-day SMAs confluence resistance breakpoint. The mentioned resistance-turned-support, currently around the $1,795-90 area, should act as a key pivotal point for short-term traders. A convincing breakthrough, leading to a subsequent slide below the $1,782 horizontal support, will shift the bias in favour of bearish traders. The XAU/USD might then accelerate the fall towards the next relevant support near the $1,760 region before eventually dropping to monthly swing lows, around the $1,746-45 zone.

On the flip side, the $1,810 region, closely followed by multi-week tops, around the $1,814 area now seems to act as immediate resistance. Some follow-through buying should set the stage for an extension of the recent appreciating move and push gold beyond the $1,825-26 intermediate hurdle. Bulls could eventually aim to challenge the $1.832-34 heavy supply zone, which has been acting as a strong barrier since mid-July.

Levels to watch