Gold Price Forecast: XAU/USD approaches $1,670 hurdle despite hawkish central banks, recession woes

• Gold price remains firmer around intraday high, bounces off 13-day low.
• IMF’s Gopinath highlights the need for ECB, Fed actions.
• Japan PM signals intervention, search for candidates to replace BOJ’s Kuroda.
• Risk profile remains sluggish amid light calendar, mixed catalysts.

Gold price (XAU/USD) holds onto the week-start recovery from short-term key support as buyers flirt with the $1,650 heading into Monday’s European session. In doing so, the yellow metal prints the first daily gain in three while recovering from the three-week low.

The metal’s rebound takes clues from the US Dollar Index (DXY) weakness, as well as easing economic fears from the UK. However, hawkish central bank expectations and fears of a recession in the Eurozone keep the XAU/USD bears hopeful during a sluggish start to the week.

That said, the DXY seesaws around 113.00 while paring the previous day’s heavy gains amid a light calendar and an absence of the market’s wagers favoring the Fed’s 1.0% rate hike. Also exerting downside pressure on the greenback’s gauge versus the six major currencies are the recent expectations from UK Chancellor Jeremy Hunt as he prepares to defend the British economy from collapsing.

Even so, International Monetary Fund (IMF) Chief Economist Gita Gopinath anticipates hawkish moves by the US Federal Reserve (Fed) and the European Central Bank (ECB), which in turn challenge XAU/USD bulls. IMF’s Gopinath recently stated that the Fed should stay the course in view of the economic data. The policymaker also mentioned that it is right for the European Central Bank (ECB) to normalize its monetary policy by end of the year and then tighten it next year.

On the same line is the CME’s FedWatch tool that highlights a 96% chance of the Fed’s 75 bps rate hike in November after Friday’s upbeat US Retail Sales and Michigan Consumer Sentiment Index, as well as hawkish comments from St. Louis Federal Reserve Bank President James Bullard.

Furthermore, Bloomberg’s expectations that Germany will drag Eurozone into recession the next year also weigh on gold prices.

It should be observed that the hints of a change in the Bank of Japan’s (BOJ) easy money policies, due to a likely change in the Governor, also test the gold buyers. Earlier in the day, Japanese Prime Minister Fumio Kishida mentioned, “(He) will consider a successor to BOJ Governor Kuroda, taking into account monetary policy foreseeability, coordination with the government.”

Amid these plays, the US Treasury yields remain sluggish around the multi-year high while the stock futures print mild gains.

Moving on, a light calendar and the market’s indecision can keep grinding the XAU/USD prices.

Technical analysis

Gold price bounces off three-week-old horizontal support but remains doubtful for the buyers amid impending bearish MACD signals, as well as downbeat RSI (14).

Even if the XAU/USD recovery extends, the 21-DMA and the 50-DMA hurdles, respectively near $1,670 and $1,710, appear tough nuts to crack for the bulls. It’s worth noting that the monthly peak near $1,730 acts as the last defense for the bears, a break of which will give control to the bulls.

Alternatively, a clear downside break of $1,639 appears necessary to recall the gold bears. Following that, a downward-sloping support line from July 21, close to $1,596 at the latest should gain the market’s attention.

Overall, gold remains on the bear’s radar despite the latest corrective bounce.

Gold: Daily chart

Trend: Further weakness expected