Gold Price Forecast: XAU/USD downside is slowing as price corrects from fresh lows

• Gold is correcting in Asia as the US dollar decelerates from fresh highs.
• Gold has formed an M-formation on the daily chart, a reversion pattern that would be expected to pull in the price.

The gold price is correcting higher in Asia but remains pressured in the grander scheme of things. It has hardened to $1,746. The focus is on the US dollar, rates and what will come of the Jackson Hole symposium.

Chair Powell's remarks will likely be ''a key avenue for the Fed to push back against the notable easing in financial conditions sparked by his last remarks, which has seen markets price-in rate cuts immediately following the rate hiking cycle, and is likely to be inconsistent with the Fed's inflation mandate,'' as analysts at TD Securities explained. '' As market expectations for rate cuts subside, speculative appetite in precious metals should dry up even further.''

In the build-up to event, we have heard from a chorus of Fed speakers. San Francisco Federal Reserve Bank President Mary Daly crossed the wires and said in an interview with CNN it was way too early to declare victory on inflation and that said either a 50 basis point or a 75 basis points hike would be appropriate.

Daly's rhetoric kicked up the dust and sent the US dollar higher by 0.12% on the day at 106.78 which has since gone parabolic to print a 108.285 in Tokyo's opening hour. US bond yields continue to rise, taking a lead from the selloff in Europe, and the curve steepened. 2-year government bond yields rose from 3.23% to 3.24% via 3.29%, and 10-year government bond yields rose from 2.90% to 2.97%. The rates rising are especially bad news for the gold bugs as the yellow metal is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion. 

Fed funds futures traders are pricing in a 55% expectation that the Fed will hike rates by 50 basis points in September and a 45% probability of a 75 basis points increase. In anticipation of higher rates, speculators' net long positioning on the US dollar continues to rise while net shorts on the euro increase, according to calculations by Reuters and US Commodity Futures Trading Commission data released on Friday. The value of the net long dollar position climbed to $13.37 billion in the week ended Aug. 16, from $12.97 billion the previous week, CFTC data shows. Net long dollar positions have increased for the first time in four weeks.

Meanwhile, in data ahead of the Jackson Hole, Core PCE will be important. Prices likely slowed sharply in July and to an even slower pace than the core CPI (0.1% vs 0.3%), analysts at TD Securities said. 

''Shelter weights remain a key cause behind this divergence. The YoY pace likely fell to 4.6% from 4.8% in June, suggesting the series has peaked. Separately, personal spending likely slowed to a still firm 0.6% MoM pace after registering an even stronger 1.0% gain in June.''

Gold technical analysis

The M-formation is a reversion pattern that would be expected to pull in the price, at least into the structure at $1,754 and a touch through there in the opening days of the week. The support structures are based on a volume profile of the bull trend while the resistance in the $1,760s has a confluence of the prior lows and structure and a 38.2% Fibonacci area. However, a downside continuation without a near-term correction will target the $1,720s.