Gold Price Forecast: XAU/USD bulls retain control above $1,800, near multi-week tops

Update: Gold attracted some dip-buying near the 100-day/200-day SMA confluence support on Tuesday and reversed a major part of the previous day's modest retracement slide from near four-week tops. The US dollar extended its recent decline triggered by Fed Chair Jerome Powell's speech at the Jackson Hole Symposium. This, in turn, was seen as a key factor that acted as a tailwind for dollar-denominated commodities, including gold.

During the highly-anticipated speech on Friday, Powell confirmed that the Fed will begin rolling back its pandemic-era stimulus later this year but fell short of offering any specific timeline. Adding to this, Powell reassured the markets that the Fed is in no hurry to raise interest rates. His remarks were interpreted as dovish and dashed hopes for an earlier than anticipated Fed lift-off. This was evident from the ongoing decline in the US Treasury bond yields, which further drove flows towards the non-yielding gold.

Meanwhile, a generally positive tone around the equity markets, to a larger extent, was offset by worries about the economic fallout from the Delta variant of the coronavirus. The market concerns were further fueled by weaker Chinese macro data released on Tuesday. According to the official report, manufacturing sector activity expanded at a slightly slower pace in August while business activity in the services sector contracted sharply. This was seen as another factor that extended some support to the safe-haven gold.

Nevertheless, the fundamental backdrop seems tilted firmly in favour of bullish traders. Hence, a subsequent strength back towards challenging a strong barrier, near the $1,832-34 supply zone, remains a distinct possibility. Market participants now look forward to the US economic docket, featuring the releases of Chicago PMI and the Conference Board's Consumer Confidence Index for some short-term trading opportunities.

Previous update: After testing the high of $1,826.50  in the overnight session, gold prices continue to edge higher on Tuesday. The US Treasury yields continue to trade lower after FOMC Chairman Jerome Powell’s restrained from admitting the timeline when the central bank is likely to start scaling back its bond purchases.

Investors seek some bottom buying in the safe-haven asset amid rising Delta variant cases of coronavirus and the latest Fed’s dovish stance on the timing of interest rate hike, which is not happening any sooner. 

The US Dollar Index, which tracks the performance of the greenback against the basket of six major currencies, remains under pressure on Fed’s Chair Powell’s comments and downbeat economic data, whereas the benchmark 10-year US Treasury bond yields touch nearly their one-week low near 1.27%. 

The lower US Treasury yields enhance the appeal of non-yielding bullion metal. The greenback steady from its recent fall after Fed Chairmen Powell did not provide a clear timeline for asset repurchase and interest rate hikes during the previous week’s Jackson Hole Symposium.

In addition to that, Fed president Loretta Mester that recent inflation readings did not justify the conditions to begin asset tapering.

The US Pending Home Sales data fell for the consecutive second month. The readings came at a lower 8.5%  on yearly basis in July, compared to market expectations of a 0.4% rise.

The supporting factors for the precious metal are disappointing global economic data, renewed coronavirus concerns,  China regulatory crackdown measures, and geopolitical tension in Afghanistan.

The upside in gold prices is capped by stability in equity markets and continuing Exchange Traded Fund (ETF) outflows. 

Technical levels

XAU/USD  daily chart

Gold prices extended the gains from the low of $1,687.78  made on August 9 and touched the high of $1,823.27  in the month of August The August series started on a subdued note while swinging back and forth in the narrow trade range of $1,800 and $1,830.

The ascending triangle from the low of the mentioned lower level levels acts as a defensive for the bulls. A break of the upper trendline would intensify the buying pressure in the gold prices.

The Moving Average Convergence Divergence (MACD)  trades near the midline. Any uptick in the MACD indicator would confirm the upside momentum. 

A sustained break of $1,830  would make the journey toward the north for the prices.

XAU/USD additional levels