Gold Price Forecast: XAU/USD pokes key hurdle around $1,835 amid risk-on mood

Update: Gold (XAU/USD) prints the heaviest daily gain in 11 weeks, despite recently easing from the monthly top, by the end of Thursday’s North American trading session. That said, the yellow metal jumped to $1,832.70 before stepping back near $1,828.50 by the press time.

Strong gains of the gold prices could be linked to the US dollar’s performance and a broad optimism in the market.

The US Dollar Index (DXY) dropped to a one-month low, posting a four-day losing streak, before closing around 91.91 with 0.39% daily losses. In doing so, the greenback gauge ignores the three basis points (bps) of an upside by the US 10-year Treasury yields to 1.266%. On the same line, the Wall Street benchmarks also posted mild gains by the end of the day’s trading.

After the Fed’s resistance to discuss tapering, downbeat US Gross Domestic Product (GDP) figures for Q2 and other US data justified the need for tapering and propelled market sentiment. The preliminary reading of the US Q2 GDP dropped below 8.4% expected to 6.5%, versus 6.4%, quarterly while the Pending Home Sales for June eased and weekly Jobless Claims also jumped.

Other than the data, chatters over US President Joe Biden’s infrastructure spending also favored the market’s mood.

Moving on, gold’s further upside hinges on its break of the $1,835 monthly high, as it has already crossed the 200-DMA level of $1,821, before reaching the $1,845 hurdle.

End of the US session wrap.

After closing in the positive territory on Wednesday, gold preserved its bullish momentum and reached its highest level in two weeks at $1,832 before going into a consolidation phase. As of writing, the XAU/USD pair was up 1.35% on a daily basis at $1,831.

On Wednesday, the greenback came under strong bearish pressure after FOMC Chairman Jerome Powell adopted a patient tone regarding the beginning of asset tapering. Although Powell acknowledged that inflation was currently above desired levels, he reiterated that temporary factors were behind rising price pressures. Reflecting the broad-based USD weakness, the US Dollar Index (DXY) closed the third straight day in the negative territory.

During the first half of the day on Thursday, the USD struggled to find demand and the disappointing macroeconomic data releases caused the currency to continue to weaken in the American session.

The US Bureau of Economic Analysis announced that the US economy grew at an annualized rate of 6.5% (first estimate) in the second quarter. This reading followed the 6.4% expansion recorded in the first quarter and came in worse than the market expectation of 8.5%. Other data from the US revealed that there were 400,000 Initial Jobless Claims in the week ending July 24, compared to analysts' estimate of 380,000. Finally, the US National Association of Realtors reported that Pending Home Sales declined by 1.9% in June. Currently, the DXY is trading at its lowest level in a month at 91.90, losing 0.4% on the day.

On Friday, the Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred gauge of inflation, will be looked upon for fresh impetus. The Core PCE Price Index is expected to rise to 3.7% on a yearly basis from 3.4% in May. A stronger-than-expected reading could help the USD limit its losses but the Fed seems certain that inflation will come back down eventually and the market reaction is likely to remain short-lived.

Gold technical outlook

On the daily chart, the Relative Strength Index (RSI) indicator rose to 60 on Thursday, suggesting that the bullish momentum is still intact and there is more room on the upside before XAU/USD become technically overbought. Additionally, gold looks to close above the 200-day SMA for the first time since mid-June, confirming the bullish bias. 

On the upside, the initial resistance is located at $1,834 (July 15 high) ahead of $1,845 (May 10 high) and $1,860 (Fibonacci 23.6% retracement of April-June uptrend). 

Supports, on the other hand, are located at $1,830 (50-day SMA), $1,820 (200-day SMA) and $1,800 (psychological level, 100-day SMA and Fibonacci 50% retracement).