Gold Price Forecast: XAU/USD recovers above $1,750, looks to post large weekly losses

Update: Following Thursday's sharp decline, the XAU/USD pair managed to stage a rebound in the first half of the day on Friday. After climbing to a daily high of $1,767, however, gold lost its traction in the early American trading hours and dropped below $1,750 amid renewed USD strength. Nevertheless, the risk-averse market environment, as reflected by a 0.9% decline in the S&P 500 Index, seems to be helping the precious metal find demand as safe haven and limit its losses. As of writing, XAU/USD was virtually unchanged on the day at $1,754 but was down 1.9% for the week. 

Gold struggled to preserve its intraday gains and dropped to the lower end of the daily trading range during the early North American session. The US dollar witnessed a modest pullback from three-week tops touched on Thursday, which was seen as a key factor that extended some support to the dollar-denominated commodity. However, renewed speculations about an earlier policy tightening by the Fed acted as a tailwind for the greenback. This, in turn, kept a lid on any further gains for the non-yielding yellow metal, rather prompted some fresh selling near the $1,767-68 region.

Thursday's upbeat US Retail Sales data underscored consumer confidence and pointed to the continuation of economic recovery. Investors now seem convinced that the Fed would eventually begin rolling back its massive pandemic-era stimulus later this year. This was reinforced by a fresh leg up in the US Treasury bond yields, which further underpinned the greenback. In fact, the yield on the benchmark 10-year US government bond climbed back to the 1.35% threshold. Hence, the next most important event for gold prices will be the FOMC monetary policy meeting on September 20-21.

Meanwhile, firming expectations for an imminent Fed taper announcement, along with persistent worried about the Delta variant and a global economic slowdown weighed on investors' sentiment. This was evident from the prevalent cautious mood around the equity markets. This might turn out to be the only factor that could help limit any deeper losses for the safe-haven gold, at least for the time being. Market participants now look forward to the release of the Michigan Consumer Sentiment Index for some short-term trading opportunities on the last day of the week.

Technical outlook

The overnight slump below strong horizontal support near the $1,780 shifted the near-term bias back in favour of bearish traders. The emergence of fresh selling on Friday adds credence to the negative outlook and supports prospects for further losses. Moreover, technical indicators on the daily chart have been drifting lower and are still far from being in the oversold territory. Hence, a subsequent decline towards the next relevant support, around the $1,729-27 region, remains a distinct possibility. The downward trajectory could further get extended and drag gold back towards challenging the $1,700 round-figure mark.

On the flip side, the daily swing highs, around the $1,767-68 region now seems to act as an immediate resistance ahead of the $1,772-74 region. Any further recovery would be seen as a selling opportunity near the $1,780 support breakpoint. That said, some follow-through buying might trigger a short-covering move and allow gold to aim back to reclaim the $1,800 mark. This is closely followed by the very important 200-day SMA, around the $1,808-10 region, which should cap the upside for the XAU/USD.