Gold Price Analysis – Break below $1,780 will shift the bias back in favour of XAU/USD bears
- The risk-on mood, rebounding US bond yields prompted some selling around gold on Wednesday.
- A weaker dollar failed to impress bulls or lend any support to the dollar-denominated commodity.
- Investors eye Thursday’s US macro data for some impetus ahead of the FOMC meeting next week.
Gold witnessed fresh selling on Wednesday and reversed the previous day’s positive move to one-week tops, triggered by the softer US CPI report. The underlying bullish sentiment in the financial markets was seen as a key factor that undermined demand for the traditional safe-haven XAU/USD. This, along with a modest rebound in the US Treasury bond yields, exerted some downward pressure on the non-yielding yellow metal. Bulls seemed rather unimpressed by renewed US dollar weakness, which tends to benefit the dollar-denominated commodity.
Signs of easing inflationary pressures in the United States dampened prospects for an immediate Fed action and raised uncertainty about the tapering timeline. This, in turn, continued acting as a headwind for the USD, which failed to gain any respite from a surprisingly strong Empire State Manufacturing Index. This, to a larger extent, was offset by a slight disappointment from the US Industrial Production figures for August and did little to influence the greenback or provide any meaningful impetus to the commodity.
Nevertheless, the XAU/USD settled below the $1,800 mark and edged lower through the Asian session on Thursday, marking the second successive day of a negative move. Investors still believe that the Fed would begin rolling back its massive pandemic-era stimulus later this year, which, in turn, continued weighing on the precious metal. So the most important event for gold prices will be the upcoming FOMC meeting on September 20-21. In the meantime, worries about the fast-spreading Delta variant and a global economic slowdown might help limit the downside.
The market concerns resurfaced on Wednesday after disappointing Chinese macro data, which underscored the recent signs of slackening economic momentum in the world’s second-largest economy. Market participants now look forward to Thursday’s US economic docket, highlighting the release of monthly Retail Sales figures, Philly Fed Manufacturing Index and Weekly Initial Jobless Claims. The data, along with the US bond yields, will influence the USD price dynamics. Apart from this, the broader market risk sentiment could provide some impetus to the XAU/USD.
Short-term technical outlook
From a technical perspective, the overnight rejection slide from the very important 200-day SMA and acceptance below the $1,800 mark might have shifted the bias back in favour of bearish traders. That said, it will still be prudent to wait for some follow-through selling below the monthly swing lows before positioning for any further depreciating move. A convincing break below the $1,781 area would set the stage for a deeper retracement to the $1,750 level. The downward trajectory could further get extended towards the $1,729-28 intermediate support before gold prices eventually drop to the $1,700 mark.
On the flip side, any meaningful positive move back above the $1,800 mark might continue to confront stiff resistance near the $1,808-10 region (200-DMA). A sustained strength beyond has the potential to lift the metal back towards the $1,832-34 heavy supply zone. The latter marks the multiple-tops barrier, which if cleared decisively should pave the way for a move towards the $1,853 region en-route the next relevant resistance near the $1.868-70 zone.