Gold Price Forecast: XAU/USD recoils from monthly highs as USD rebounds

Update: Gold prices pare part of its previous week’s gains and trades below $1,830 on Monday. The selling pressure in the greenback pushed prices higher near $1,835 on Friday. The downside move in the US dollar was sponsored by the weaker Nonfarm payrolls (NFP) data, which came at 235K, much below the market expectations of 750K, a big miss. Investors ditched the US dollar on the anticipation that poor readings could delay the Fed’s plan of the reduced bond purchase program. The US Treasury yields gained despite the offbeat crucial NFP readings, whereas the Unemployment rate drooped to 5.2% in August from the previous 5.4%. The higher US bonds yields reduced the appeal of the non-yielding precious metal. The prices are expected to trade in a rangebound manner amid safe-haven buying on the concerns of COVID-19 and slowdown in China.

Gold is trading around the $1,830 mark after taking out resistance ($1,831) on Friday, after a big miss on the US Nonfarm Payrolls.  The US dollar index (DXY) is seen to be crawling back to 92.10 after slipping to a near four-week low at 91.94.

Risk-on sentiment eased off around New York close, despite a weak DXY.

The S&P 500 futures are trading around 4,532, down 0.06% while US 10-year yields are up around 1.326%, which is helping the US dollar index recover some lost ground towards 92.10 as Gold retreats to $1830.

The US Nonfarm Payroll was a big miss on Friday, printing 235,000 versus 750,000 expected. The good news was unemployment, which dropped to 5.2% from 5.4% as July data was revised to 1.053 million over 943,000.

The US dollar index, which measures the greenback’s strength against a basket of six majors, slipped to a near four-week low of around 91.94 as the job data figures flashed in.

Gold, which was consolidating in a tight range between $1809 and $1,820, rallied towards $1834, near a two-month high.

Federal Reserve Chairman Jerome Powell had said in his speech last week that if job markets continued to grow, tapering could begin this year, without specifying any timeline for the same.

He had further raised concerns over the Delta variant of covid situations in the US and other countries, and inflation target above 2% before thinking of hiking interest rates.

Investors now believe that the Federal Reserve would wait more before pulling back on its massive asset purchase program.

The tapering announcement could further push to December or early 2022, as the Fed maintains its dovish tone.

Gold could push towards the $1850 mark if the US dollar index weakens further.

On the other side, the S&P 500 futures closed lower after hitting another all-time high around 4,551 on Friday, as investors indulged in some profit-taking.

With the US and Canada closed due to Labor Day on Monday, traders can expect a quiet session ahead.

The market now shifts focus on the ECB’s Interest Rate Decision later this week.

A hawkish stance by the central bank could add further pressure on the DXY while helping Gold to rally towards the $1,850 mark.

Technical levels:

Gold bulls are looking poised to push towards $1,835 before pulling back. The yellow metal is well supported around $1,810, September 2 low, followed by the $1810 mark.

The rally between $1,677 and $1,834 is an impulse wave, clearly subdividing into five waves. If bulls are not successful in breaking above the $1,835 mark, the probability remains for a corrective decline.

Gold prices need to break below $1,810 to confirm an intermediate top in place. Bears might be inclined to produce a correction towards $1,775 in the near term.

Alternatively, a push above $1,835 from here will attempt a test and break above the $1,850 mark before pulling back lower again.