Gold Price Forecast: XAU/USD struggles for direction, flat-lined above $1,780 level

Gold reversed an early North American session dip to the $1,776 area and turned positive for the third successive day, though remained below weekly tops touched earlier this Thursday. Currently hovering around the $1,782-83 region, the risk-off impulse in the markets turned out to be a key factor that acted as a tailwind for the safe-haven precious metal.

Investors turned nervous amid fresh concerns about potential contagion from China Evergrande's debt crisis. The heavily indebted developer said on Wednesday that a $2.6 billion stake in its property services unit failed. However, the market reaction, so far, has been limited amid reports that Evergrande has won more than a three-month extension to the maturity of a $260 million bond. Moreover, Chinese officials that the trouble in the sector would not be allowed to escalate into a full-blown crisis.

This, along with a goodish US dollar rebound from three-week lows, kept a lid on any meaningful gains for the dollar-denominated commodity. The greenback drew some support from a fresh leg up in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond moved back to the 1.67% mark, or the highest level since May amid expectations for an early policy tightening by the Fed. This was seen as another factor that contributed to cap the upside for the non-yielding gold, at least for now.

Despite signs of weakening economic activity, market players seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. The speculations seemed unaffected by the overnight comments by Fed Governor Randal Quarles, saying that it would be premature to start raising interest rates in the face of high inflation that is likely to recede next year. Nevertheless, investors have been pricing in the possibility of a potential interest rate hike in 2022.

On the economic data front, the US Weekly Initial Jobless Claims dropped to 290K during the week ended October 15 as against expectations for a modest rise to 300K from 296K previous. This, to a larger extent, helped offset a weaker than anticipated Philly Fed Manufacturing Index, which fell to 23.8 for the current month from 30.7 in September and did little to influence the USD price dynamics. Thursday's US economic docket also features the release of Existing Home Sales data, though is unlikely to provide any impetus to gold prices.

Technical outlook

From a technical perspective, bulls might still wait for a sustained move beyond the $1,800 confluence hurdle before placing fresh bets. The mentioned handle comprises technically significant 100/200-day SMAs, which if cleared decisively will set the stage for additional gains. The next relevant barrier is pegged near the $1,808-10 region, above which gold seems all set to accelerate the momentum towards challenging the $1,832-34 heavy supply zone.

On the flip side, any meaningful pullback is likely to find decent support near the $1,775 area. Some follow-through weakness could drag gold prices back towards the $1,763-60 region. Failure to defend the mentioned support levels would negate any near-term positive bias and prompt aggressive technical selling. This, in turn, will expose the $1,750 support zone before the XAU/USD eventually drops further towards September monthly swing lows, around the $1723-21 region.

Levels to watch