Gold Price Forecast: XAU/USD jumps back closer to multi-week tops, above $1,810 level

• Gold offered for the first time in July, reverses from three-week top.
• Covid woes, indecision over central bank measures weigh on risk appetite.
• ECB special meeting, US Jobless Claims will be the key.

Update: Gold rallied over $15 from the daily swing lows and moved back above the $1,810 level, or closer to multi-week tops during the early European session. Worries about the economic fallout from the spread of the highly contagious Delta variant of COVID-19 took its toll on the global risk sentiment. This was evident from a steep decline in the US equity futures, which provided a goodish lift to the traditional safe-haven asset – gold.

The risk-off flow was reinforced by an extension of the steep decline in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond dropped below the 1.30% threshold, or multi-month lows on Thursday, which forced investors to unwind their US dollar bullish bets. This, in turn, was seen as another factor that acted as a tailwind for dollar-denominated commodities, including gold.

That said, indications that the Fed is moving towards tightening its monetary policy as soon as this year should help limit any deeper losses for the greenback. The June FOMC meeting minutes released on Wednesday revealed the Fed officials agreeing on the need to be ready to act if inflation or other risks materialize. This suggests that QE tapering discussions could begin in the coming months, which should keep a lid on any runaway rally for the non-yielding gold.

Previous update: Gold prices slipped below $1,800 as they struggled to hold onto the gains on Thursday. The US Treasury yields retreated towards their four-month low at 1.31%  following the FOMC minutes. Lower US 10-year benchmark yields countered a stronger US dollar, keeping the gains limited for the yellow metal. The minutes from the Federal Reserve’s June meeting revealed Fed officials felt that the central bank's substantial progress goal on economic recovery has not yet been met. Some of the committee members signaled the potential for the central bank to tighten its monetary policy sooner than expected. XAU/USD has been pressurized by the firmer US dollar amid concerns of rising coronavirus infections globally. The ETF outflow is also a weighing factor for gold prices. The higher US dollar makes gold expensive for other currencies holders.

 

Souring risk appetite weighs on the gold (XAU/USD) prices amid early Thursday. That said, the yellow metal registers a 0.18% intraday loss of around $1,800, down for the first time since June 29.

The coronavirus (COVID-19) woes recently spread out of the Asia-Pacific region after the UK reported the highest daily covid infections since late January and the US witnessed a fresh variant, Epsilon, in California that resists vaccine. Elsewhere, South Korea reported all-time high cases and Tokyo also up for extending the virus-led emergencies to late August. Furthermore, Australia’s Health Expert Catherine Bennett, per ABC News, says many more Australians need to be vaccinated before states and territories can even consider doing away with lockdowns to control outbreaks. 

Amid these plays, World Health Organization (WHO) official Mike Ryan warned, per The Guardian, of ‘epidemiological stupidity’ of early Covid reopening.

Elsewhere, the latest FOMC minutes marked upside risk to inflation while also rejecting immense pressure to act immediately. Following the minutes, Atlanta Federal Reserve President Raphael Bostic said, per Reuters, “A new rise in coronavirus infections driven by the more virulent Delta variant could cause consumers to "pull back" and slow the US recovery.”

It’s worth noting that geopolitical tension in the Middle East and Sino-American tussles also heavy the market’s mood.

That said, S&P 500 Futures drop 0.14% intraday while the US 10-year Treasury yields remain on the back foot around 1.31%, the lowest level since late February, by the press time.

Looking forward, weekly US Jobless Claims may entertain gold traders but major attention will be given to the European Central Bank’s (ECB) Special Meeting as policymakers jostle over inflation target. Above all, risk catalysts are crucial to watch for near-term direction.

Technical analysis

Gold justifies the early week failures to cross 200-day EMA with the latest drop. However, a clear downside break of $1,798-95 horizontal area, stretching from late April, becomes necessary for the bears to retake controls.

Following that, a horizontal from late March area around $1,756 will be in the spotlight.

Alternatively, a daily closing beyond the 200-day EMA level of $1,808 will need validation from May 13 low surrounding $1,809 to aim for May 10 top of $1,845.

Overall, gold bulls seem to have tired and hence sellers may return should the latest risk-off mood prevail for long.

Gold: Daily chart

Trend: Further weakness expected

Also read: Gold Price Forecast: XAU/USD teases $1,800 on steady USD, risk-off mood