Gold Price Forecast: XAU/USD tests key moving averages before next move

After dipping below $1,800 at the start of the week, gold managed to close virtually unchanged at $1,812 on Monday despite the broad-based USD strength. On Tuesday, XAU/USD gained traction and climbed to a daily high of $1,825 but failed to preserve its bullish momentum. As of writing, gold was posting small daily losses at $1,810.

The recent market action suggests that the precious metal is starting to find demand in the risk-averse market environment after losing its safe-haven status during the first half of the year.

Renewed concerns over the quick spread of the coronavirus Delta variant crippling the global economic recovery and inflation staying high for longer than expected triggered a flight to safety on Monday. Major global equity indexes suffered heavy losses and the benchmark 10-year US Treasury bond yield lost nearly 7% with investors seeking refuge. In the meantime, the USD gathered strength, especially against the risk-sensitive commodity currencies, and made it difficult for XAU/USD to push higher.

On Tuesday, the decisive rebound witnessed in Wall Street's main indexes seems to be limiting gold's gains. Moreover, the US Dollar Index, which tracks the USD's performance against a basket of six major currencies, stays in the positive territory and puts additional weight on XAU/USD's shoulders.

The only data from the US showed earlier in the day that Housing Starts increased by 6.3% in June, bettering May's reading of 2.1%. On a negative note, Building Permits declined by 5.1% in the same period.

There won't be any high-tier macroeconomic data releases on Wednesday. With market participants assessing how the shift in the risk sentiment will impact assets' valuations moving forward, gold's next move is likely to come on a failure of a key technical level.

Gold technical outlook

Despite the recent fluctuations, the Relative Strength Index (RSI) indicator on the daily chart is moving sideways around 50, underlining XAU/USD indecisiveness in the near term.

Gold's volatility is likely to pick up in case the price breaks out of the horizontal range that seems to have formed between $1,790 (100-day SMA, 20-day SMA) and $1,825 (200-day SMA). A daily close above the resistance area is likely to open the door for additional gains toward $1,835 (50-day SMA).

On the flip side, $1,770 (Fibonacci 61.8% retracement of April-June uptrend) aligns as the next target below $1,790 with $1,800 (psychological level) possibly acting as interim support ahead of these levels. 

Additional levels to watch for