Gold prices hold on to gains above $1,750, upside movement looks limited. Gold is trying to recover some of the previous day’s losses on Friday. Higher US Treasury yields support demand for the US dollar. cryptocoin.comAs we reported earlier in , renewed concerns of the Evergrande debt crisis in China are supporting prices near lower levels for gold.
Gold prices outlook
Gold gained some positive momentum on the last trading day of the week and recovered some of the overnight decline, reaching its lowest level since August 11th. The upper limit of the daily trading range was formed around the $1,754-$55 region. Uncertainty persists over potential risks from China’s debt crisis Evergrande Group has capped recent optimism. Apart from that, a more hawkish trend from major central banks has dampened investors’ appetite for riskier assets. This was evident from the cautious mood in the equity markets, which was seen as a key factor acting as a headwind for the safe-haven gold.
The commodity seems to have closed its two-day loss streak for now, although a meaningful positive move still seems difficult between Fed and BoE’s early rate hike expectations. This was reinforced by the continued rise in sovereign bond yields, which should discourage bulls from making aggressive bets around the non-yielding yellow metal. In fact, the yield on the benchmark 10-year US government bond rose above the 1.4% threshold for the first time since July. This helped stimulate demand for the US dollar, which could further cooperate to limit the rise of the dollar-denominated commodity.
Therefore, it would be prudent to wait for a continuation of strong buying before confirming gold bottoming out in the near term and positioning for more gains. Market participants are now looking forward to Fed Chairman Jerome Powell’s scheduled speech early in the North American session. This, along with bond yields and broader market risk sensitivity, could create some trading opportunities around gold.
US data
The US Dollar Index, which tracks the dollar’s performance against a basket of six major currencies, dropped near a one-week low on Friday, making the precious metal cheaper for other currency holders. The dollar came under selling pressure after gloomy US economic data. US Initial Unemployment Claims unexpectedly rose in the week ending September 18 at 351K. However, the market assessed that the underlying trend remained consistent as the labor market showed a steady improvement.
The US Federal Reserve lowered its growth forecasts for 2021 and raised its inflation forecast, but insisted the contraction could begin in November and end next year, but said the door was open for more stimulus if the economy needed it. The Central Bank cut its Gross Domestic Product (GDP) growth forecasts for 2021 from 7% to 5.9%, implying that rate hikes could happen sooner than expected. Gold is often considered a hedge against inflation and currency volatility. A hawk move by the Federal Reserve would reduce gold’s appeal. If the Fed raises interest rates, that will increase the opportunity cost of holding the non-interest-paying bullion.
technical levels
Gold prices have been trading in a wider range of $1,750 and $1,830 since the end of June. XAU/USD touched the low of $1,687.78 on August 9 after briefly breaking the range. Prices are trading below the 20-day Simple Moving Average (SMA) at 1,801.35, confirming the bearish pressure on gold, according to analyst Rekha Chauhan.
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The Moving Average Convergence Divergence (MACD) is bearish below the middle line. According to analyst Rekha Chauhan, any decrease in the MACD indicator will increase the selling pressure and prices will approach the low of $1,724.18 on August 11. A daily close below the $1,720 horizontal support might entice the bears to retest levels last seen in April. XAU/USD bears could meet the April 1 low of $1,705.84, according to the analyst. Alternatively, if the price continues above the intraday high, it could bounce back to the $1,770 horizontal resistance and then retrace the September 22 high of $1,787.35. A daily close above the 20-day SMA would mean psychological $1,800 for XAU/USD.
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