Gold Price Forecast: XAU/USD drops back below $1780 amid cautious market mood

• Gold lost its traction before reaching $1,800 on Wednesday.
• Near-term technical outlook remains bearish with 100-day SMA capping the upside.
• Additional losses are likely with a daily close below $1,770.

Update: Gold price is pressurizing the range lows near $1770 after facing rejection at higher levels once again. The overnight resurgent demand for the US dollar amid negative sentiment on Wall Street knocked off gold price back below the $1780 level. Gold price continues to face stiff resistance at the 100-Daily Moving Average (DMA) at $1794 while daily technical setup continues to remain in favor of the bears. Uncertainty over US President Joe Biden’s infrastructure stimulus plan also hurts gold. Next of relevance for gold remains the US Durable Goods, final GDP and Jobless Claims data for fresh trading impetus.

 

The broad-based selling pressure surrounding the greenback during the first half of the day on Wednesday allowed gold to extend its recovery. After touching a daily high of $1,794, however, XAU/USD lost its traction and erased a large portion of its daily gains. As of writing, gold was trading with modest daily gains at $1,783.

While testifying before the House Select Subcommittee on the Coronavirus Crisis on Tuesday, FOMC Chairman Jerome Powell said that "a substantial part or perhaps all of the overshoot" in inflation were from categories directly affected by the reopening. Powell's comments failed to help the USD find demand and the US Dollar Index closed the second straight day in the negative territory.

On Wednesday, the data from the US showed that the business activity in the manufacturing sector continued to expand at an unprecedented pace with the Markit Manufacturing PMI climbing to a new series-high of 62.6. On a negative note, the Markit Services PMI declined to 64.8 from 70.4 in May and missed the market expectation of 70. In the publication, Chris Williamson, Chief Business Economist at IHS Markit, noted that the economy continues to run hot as prices charged for goods and services continue to rise very sharply.

In the meantime, Atlanta Federal Reserve President Raphael Bostic said he revised his 2021 inflation forecast higher to 3.4% and added that he expects a liftoff in the policy rate in 2022 before two more hikes in 2023.

Following the mixed macroeconomic data releases and Bostic's hawkish remarks, the USD started to regather strength and caused XAU/USD to turn south.

Gold technical outlook

On the daily chart, the 100-day SMA continues to act as dynamic resistance a little below the $1,800 psychological level. Unless gold manages to make a daily close above that level, the recovery is likely to gather momentum. Additionally, the Relative Strength Index on the daily chart holds below 40, suggesting that there is more room on the downside before the pair becomes technically oversold.

The initial support is located at $1,770 (Fibonacci 61.8% retracement of April-June uptrend) ahead of $1,756 (April 29 low, static level) and $1,745 (static level).

On the upside, $1,825 (Fibonacci 38.2% retracement) and $1,835 (200-day SMA) could be seen as significant hurdles in case gold breaks above $1,800.

Previous Update

Update: Gold (XAU/USD) trims weekly gains, the first in four, with a recent retreat to $1,778 amid a lackluster Asian session on Thursday. Even so, the commodity is on the way to snap the two-month uptrend with a 6.7% downside so far in June.

The latest weakness in gold prices could be linked to the uncertainty over the passage of US President Joe Biden’s infrastructure spending package before policymakers go on a recess. Also weighing the market sentiment, also the gold, is the Sino-American tussles and Delta Plus covid variant woes.

It’s worth noting that a lack of major data/events and the asset’s technical performance also restrict gold moves. That said, an area between 100-day SMA and late April lows seems to test momentum traders of late.

 

Additional levels to watch for