Gold Price Forecast: XAU/USD buyers approach $1,800 on softer DXY ahead of US inflation

• Gold price bounced off 13-day-old support line amid softer US dollar.
• Market’s preparations for US inflation, pullback in yields and a light calendar favored XAU/USD buyers.
• Second-tier US jobs numbers, risk catalysts can entertain bulls ahead of US CPI for July.

Gold price (XAU/USD) cheered US dollar pullback and softer yields to print the latest gains, before taking rounds to $1,790 during the initial Asian session on Tuesday. The metal’s upward trajectory also took clues from equities as the key began the week’s trading on a positive side but retreated by the end of the day.

US Dollar Index (DXY) traced Treasury yields to consolidate Friday’s heavy gains that offered the greenback gauge the first weekly positive in three. That said, the DXY registered a 0.19% daily loss to 106.37 by the end of Monday whereas the US 10-year Treasury yields dropped nearly seven basis points (bps) to 2.75% at the latest, following a 14-bps run-up the previous day.

Also favoring the gold buyers could be the market’s lack of attention to the US-China tussles over Taiwan and China’s solid trade numbers for July. That said, the dragon nation continues its military drills near the Taiwan border but the US recently signaled no major escalation in the geopolitical risks likely from Beijing. Elsewhere, China’s trade numbers for July. The headline Trade Balance rose to $101.26B versus $90B forecasts and $97.94B. Further details suggest that Exports increased by 18% compared to 15% expected and 17.9% prior whereas the Imports eased to 2.3% compared to 3.7% expected and 1.0% prior.

It’s worth noting, however, that escalating hawkish Fed bets and the Fed policymakers’ favor for the aggressive rate hikes challenged the XAU/USD bulls. That said, the interest rate futures signaled a 73% chance of the Fed’s 75 bps rate hike in September following the strong US jobs report for July. The headline Nonfarm Payrolls (NFP) rose to 528K versus 250K expected and 398K upwardly revised prior. Further, the Unemployment Rate also inched lower to 3.5% compared to 3.6% expected and previous readings.

After the data, San Francisco Fed President Mary Daly said during the weekend that the Fed is far from done in combating inflation. The policymaker also added, “50 bps increase is definitely in play. We need to keep an open mind.” On the same line was Fed Governor Michelle Bowman who said, “Fed should consider more 75 basis-point interest rate hikes at coming meetings in order to bring high inflation back down to the central bank's goal.”

Looking forward, the US dollar weakness may favor gold buyers, together with the technical details mentioned below. Also important to watch will be the US Nonfarm Productivity and Unit Labor Costs for the second quarter (Q2). Forecasts suggest that the US Nonfarm Productivity could improve to -4.6% from -7.3% prior while Unit Labor Costs may ease to 9.5% versus 12.6% previous readings. Furthermore, headlines surrounding Taiwan and Russia will also be important for clear directions.

Technical analysis

Gold price not only bounced off a short-term key support line but also crossed the 50-DMA on a daily closing for the first time since late April. The upside move takes clues from the firmer RSI (14), not overbought, as well as bullish MACD signals to keep buyers hopeful.

That said, the XAU/USD buyers are ready to renew the monthly high near the $1,800 threshold before poking the 38.2% Fibonacci retracement of April-July fall, close to $1,802.

However, a downward sloping resistance line from mid-June, close to $1,827, could challenge the gold bulls afterward.

Meanwhile, the 50-DMA and the aforementioned support line, respectively near $1,786 and $1,780, could restrict the metal’s short-term downside.

Following that, the 23.6% Fibonacci retracement level and the 21-DMA, around $1,755 and $1,741 in that order, should gain the XAU/USD sellers’ attention.

Overall, the gold price is ready to extend the latest gains toward the 1.5-month-old resistance line.

Gold: Daily chart

Trend: Further upside expected