Gold Price Forecast: XAU/USD clings to 21-DMA amid firmer US dollar, cautious mood

Update: Gold price has returned to the lower bound of this week’s trading range, clinging onto the critical 21-Daily Moving Average (DMA) support at $1811 amid a broadly firmer US dollar. The greenback staged a solid comeback on Wednesday after the Fed officials turned in hawkish and brought forward expectations of monetary policy normalization. Further, intensifying concerns over the Delta covid variant spread in Asia and the US weighed on the market mood, adding to the dollar’s safe-haven allure. Looking ahead, the BOE policy decision, US weekly Jobless Claims and covid update will offer fresh trading impetus while all eyes remain on Friday’s NFP release.

Read: BoE in the spotlight

Gold (XAU/USD) prices fail to extend Wednesday’s recovery moves while taking rounds to $1,811-12 amid a quiet Asian session on Thursday. In doing so, the yellow metal portrays cautious sentiment amid fears of tapering and the Delta covid variant woes ahead of the week’s important events, namely the Bank of England (BOE) monetary policy meeting and the US Nonfarm Payrolls (NFP).

With the Fed officials jumping back on their taper talks, supported by Treasury Secretary Janet Yellen, the US Dollar Index (DXY) posted the heaviest weekly gain the previous day. It’s worth noting that the Fed policy adjustment chatters gained extra support from the latest comments from San Francisco Federal Reserve Bank President Mary Daly.

After Fed Vice Chair Richard Clarida raised hopes of tapering in 2021 and rate hikes by 2023 if core inflation hits 3% this year, Treasury Secretary Yellen said, per Bloomberg, “By the end of this year inflation will be running at a level consistent with the Fed’s target.” Also backing the taper tantrum were the comments from Daly during the PBS Newshour interview, per Reuters. The Fed policymaker said that her Modal outlook is that fed will be able to taper later this year or early next year.

On the other hand, virus numbers are again on the rise in the US, Australia and China, which in turn challenges the policymakers and underpin the US dollar’s safe-haven demand.

Also challenging the market sentiment could be the downbeat prints of the US ADP Employment Change for July, which slumped to 330K versus 695K expected and 680K revised down prior, to weigh on the equities. It should be noted, however, that the ISM Services PMI for July jumped to 64.1 versus 60.4 prior and challenged the market bears.

Amid these plays, US Dollar Index (DXY) edges higher around 92.30 after rising the most in a week whereas the S&P 500 Futures struggle to remain positive following Wall Street’s downbeat performance. Further, the US 10-year Treasury yields also remain firm around 1.185%.

Looking forward, gold traders will pay close attention to the macros as tension mounts. However, bearish impulses gain momentum and hence any positive news will be considered with a pinch of salt.

Technical analysis

Gold fades bounce off weekly low while justifying Wednesday’s bearish candlestick formation, gravestone Doji, amid sluggish RSI line.

The bearish impulse could also take clues from the metal’s inability to cross the 50-DMA, not to forget a slightly descending trend line from mid-July.

However, a convergence of 100-DMA and an ascending trend line from June 29, near $1,804, followed by the $1,800 threshold, offers a tough nut to crack to the gold sellers.

Meanwhile, the corrective pullback may remain doubtful unless staying below 50-DMA and the stated immediate resistance line, respectively around $1,822 and $1,833.

Even if the bright metal crosses the $1,833 hurdle, a downward sloping trend line from June 01 could challenge the bull’s entry at around $1,839.

Gold: Daily chart

Trend: Further weakness expected