Gold Price Forecast: XAU/USD refreshes monthly lows near $1,745 on higher USD

Update: Gold prices touch the lowest level in a month and continue with its previous two week’s downside momentum. The biggest single day fall of $30  was observed on Thursday following a  higher-than-expected US Retail sales data. A stable retail sector indicates higher consumer sentiment, which could mean a more hawkish Fed in its two-day meeting in the week. Investors remained cautious ahead of the much anticipated FOMC meeting as they waited for clues about the timeline to slow the central bank's  $120 billion monthly bond purchase program. Furthermore, the benchmark US 10-year Treasury yields trade at 1.36% with 0.49% gains. The greenback rallies above 93.00 for the first time since August 22, following the footprints of the US bond yields. A higher USD valuations make gold expensive for the other currency holders investors.

Gold is flat during holiday thin markets with both Tokyo and China out today. Gold vs the US dollar has traded in a narrow range between $1,751.27 low and a $1,755.29 high.  

The price is correcting from last week's low of $1,745 that was made o the back of a firmer greenback.  The dollar scaled three-week peaks on Friday, supported by better-than-forecast US Retail Sales data released on Thursday ahead of this week's Federal Reserve meeting. 

Investors have not fully discounted a reduction of asset purchases by the Federal Reserve before the end of the year which is giving the US dollar a lift which is a headwind to the price of gold. Moreover, there are risk factors that are supportive of the mighty greenback: 

• Evergrande: Risk-off tone for APAC, a USD win-win scenario, bad for AUD

The dollar index, a gauge of the greenback's value against six major currencies, rose to 93.259, the highest since the third week of August. It was last trading flat on the day at 93.24 For the week, the dollar index gained 0.6%, its largest weekly percentage rise since mid-August.

Looking ahead for the week, the Fed holds a two-day monetary policy meeting next week and is expected to open discussions on reducing its monthly bond purchases, while tying any actual change to US job growth in September and further out. 

The two-day FOMC meeting

No change is expected but traders are in anticipation of a slightly more hawkish note considering the Fedspeak of late. All in all, a hawkish hold is on the cards for this meeting as the official statement and the minutes should continue to lay the groundwork for tapering this year, analysts at Brown Brothers Harriman argued:

''The Fed is likely to wait until the November 2-3 meeting to make an official tapering announcement, with a likely start in December.  Consensus sees the Fed starting to taper in late 2021 or early 2022 and then starting to hike rates in early 2023, which are ultimately dollar-supportive if underpinned by economic recovery and not just rising inflation and inflation expectations,'' analysts at Brown Brothers Harriman said.

No bid in gold

''The 'stagflation' narrative is capturing the market's share of mind, as participants look to a period of high inflation and slowing growth, but this has yet to translate into additional interest for gold,'' analysts at TD Securities said.

''In fact, the yellow metal is struggling to find additional buyers as central banks slow their purchases, while ETF holdings remain broadly unchanged. In this context, liquidations from the top holders of SHFE gold catalyzed a reversal in flows from CTA trend followers, in response to waning upside momentum.''

''In this context,'' the analysts argue, ''a dry-powder analysis argues that while gold bugs aren't widespread, they hold bloated position sizes, creating an opportune set-up for the de-risking observed in the last session.''

''However, considering that Shanghai gold length is nearing historical lows, a cleaner discretionary and trend-following positioning slate argues that the shake-out observed is unlikely to morph into a rout.''

Gold technical analysis

At this juncture, consolidation would be expected as traders weigh additional data for the week and global economic conditions ahead of the Fed this week:

While there is room to go to the downside into $1,730 and 10 Aug highs, the price would be expected to stall and correct given the length of last week's drop beyond the daily ATR of $22. The 23.6-50% ratios can be eyed into old the support that has been expected to act as resistance on a restest of the area.