A combination of factors prompted some selling around gold on Friday. The risk-on mood, rebounding US bond yields weighed on the XAU/USD. A subdued USD price action might lend some support to the commodity. Gold Price Forecast: XAU/USD bulls testing bears’ commitment at crucial daily resistance, US consumer data eyed. Having failed to conquer the $1,800 mark on Thursday, gold witnessed some selling on the last day of the week and snapped three consecutive days of the winning streak to near one-month tops.
The intraday retracement slide extended through the first half of the European session and dragged the XAU/USD to fresh daily lows, around the $1,781-80 region in the last hour. The prevalent risk-on mood – as depicted by a generally positive tone around the equity markets – was seen as a key factor that acted as a headwind for the safe-haven precious metal.
Adding to this, a solid rebound in the US Treasury bond yields and prospects for an early policy tightening by the Fed further undermined the non-yielding gold. The latest FOMC meeting minutes released on Wednesday revealed that the Fed remains on track to begin rolling back its massive pandemic-era stimulus by the end of 2021. The markets have also started pricing in the possibility of an interest rate hike in 2022 amid worries that the recent widespread rally in commodity prices will stoke inflation. That said, a combination of factors warrant some caution before confirming that the XAU/USD has topped out in the near term.
Gold, which is considered as a hedge against inflation, should benefit from growing market fears about a faster than expected rise in inflationary pressure. This comes amid signs of a slowdown in the global economic recovery, which have been fueling concerns over the return of stagflation and should further extend some support to the safe-haven XAU/USD. Apart from this, a subdued US dollar price action might further hold traders from placing aggressive bearish bets around the dollar-denominated commodity and limit the downside, at least for now.
Market participants now look forward to the US economic docket – highlighting the release of monthly Retail Sales, Empire State Manufacturing Index and Prelim Michigan Consumer Sentiment Index. This, along with the US bond yields and a scheduled speech by New York Fed President John Williams, will influence the USD price dynamics later during the early North American session. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around gold.
From current levels, any subsequent decline is likely to find decent support near the $1,775-73 region. Sustained weakness below might prompt some technical selling and drag spot prices back towards the $1,750 static support. A convincing break below will shift the bias back in favour of bearish traders and turn the XAU/USD vulnerable to retest September monthly swing lows, around the $1,722-21 zone. On the flip side, bulls are likely to wait for a sustained strength above the $1,800 mark before placing fresh bets. Gold might then accelerate the momentum further towards the $1,816-18 intermediate hurdle before eventually darting towards the $1,832-34 heavy supply zone.