Gold Price Forecast: XAU/USD bulls attack $1,800 on softer US dollar, Fed Minutes eyed

• Gold price ended the week on a firmer footing as inflation numbers drowned the US dollar.
• Fed policymakers tried to defend the hawks but markets awaited FOMC Minutes for confirmation.
• Hint on the size of the next rate hike will be closely watched in the Minutes.
• China’s monthly data dump will offer immediate directions amid mixed Sino-American updates, easing of covid-19 restrictions in Shanghai.

Gold price (XAU/USD) holds onto the recent upside momentum around $1,800 as it begins the weekly trading around a monthly high, after a four-week uptrend. That said, the metal’s latest advances could be linked to the market’s receding hawkish bias on the Fed’s next move considering the latest softness in the headline inflation data, despite the hawkish comments from the Fed policymakers.

Be it the Consumer Price Index (CPI) or the Producers Price Index (PPI), both the top-tier inflation gauges from the US have eased in July. The same took some pressure off the Fed policymakers to boost the rates faster amid the looming recession woes. The same joined the absence of major negatives from the geopolitical front to help build the market’s sentiment and favor the XAU/USD bulls.

That said, Richmond Federal Reserve (Fed) Bank President Thomas Barkin said on Friday that he wants to raise interest rates further to bring inflation under control. Even so, the policymaker added that he will watch the US economic data to decide how big a rate hike to support at the Fed's next meeting in September. "I'd like to see a period of sustained inflation under control, and until we do that I think we are just going to have to move rates into restrictive territory," Barkin told CNBC, per Reuters.

While data this week showing inflation did not accelerate in July was "welcome," Barkin said, he would want to see inflation running at the Fed's 2% target for "some time" before stopping rate hikes.

Previously San Francisco Fed President Mary Day backed opportunities of witnessing another 75 basis points (bps) of a rate hike in September, while also suggesting an upfront 0.50% rate hike to be sure.

Also, Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans sounded grim. That said, Fed’s Kashkari mentioned that he hasn't "seen anything that changes" the need to raise the Fed's policy rate to 3.9% by year-end and to 4.4% by the end of 2023. Further, Fed policymaker Evens stated, “The economy is almost surely a little more fragile, but would take something adverse to trigger a recession.” Fed’s Evans also called inflation "unacceptably" high.

It’s worth noting that the August preliminary University of Michigan Consumer Sentiment Index (CSI) edged higher to 55.1 (flash) from 51.5 in July and the market expectation of 52.5. Further details revealed that the one-year-ahead inflation expectations fell to a six-month low of 5.0% from 5.2%, while the five-year inflation outlook edged up to 3.0% from 2.9%.

Elsewhere, mixed updates surrounding the US-China tussles and the Biden-Xi meeting, as well as easing covid-led restrictions in Shanghai appeared to have offered a quiet start to the week.

Also read: Weekend News: China, Taiwan gain major attention

Amid these plays, Wall Street closed on the positive side and the US 10-year Treasury yields closed mildly negative, down 5.6 basis points (bps) to 2.83% at the latest.

Looking forward, China’s monthly Retail Sales and Industrial Production for July will offer immediate directions. However, major attention will be given to the Federal Open Market Committee (FOMC) Minutes.

Technical analysis

Gold price remains successfully above the 50-DMA nearby support, around $1,782 by the press time, even after retreating from a one-month-old resistance line, close to $1,814 at the latest.

Given the firmer RSI and the MACD signals, the XAU/USD bulls are likely on the way to crossing the immediate hurdle.

However, the RSI line approaches the overbought region and hence a downward sloping resistance line from late April, near $1,825, could be a tough nut to crack for the gold buyers.

Even if the bulls manage to cross the $1,825 resistance line, a convergence of the 200-DMA and 50% Fibonacci retracement of the April-July downside, near $1,840-43, will be a major challenge for the XAU/USD bulls.

Meanwhile, a downside break of the 50-DMA support around $1,782, could quickly fetch the quote towards the 23.6% Fibonacci retracement level of $1,755.

Following that, the $1,714 and the $1,700 threshold could entertain the gold bears before directing them to the yearly low near $1,680.

Gold: XAI/USD chart

Trend: Further upside expected