Gold Price Forecast: XAU/USD pressured as US dollar catches eyes on test of 110 DXY
- Gold is losing traction on the bid in the face of a strong US dollar in Tokyo.
- The price could be headed for a test of the $1,700 level in the coming sessions.
The gold price is attempting to correct higher but has come up against a strong US dollar for the start of the week that follows Friday's mixed US labour report. At the time of writing, gold is losing highs of $1,712.66 and printing a low of $1,707.79. Meanwhile, the US dollar has captured the market's attention with the index, that measures the greenback vs. a basket of currencies, rallying to a new bull cycle high of 110.032.
The US dollar is the driving force in markets currently as traders get behind the world's reserve currency in the face of pending recessions among the world economic powerhouse economies such as China and Europe. Markets are also anticipating more to come from the Federal Reserve following Fed Chair Jerome Powell's recent remarks made at the Jackson Hole symposium in Wyoming. Powell stated that rates would need to be high "for some time" to combat stubbornly high inflation.
This environment has been weighing on the gold price and analysts at TD Securities argued that ''with every tick lower in gold prices, we continue to see odds of a major capitulation event growing, which could coincide with a break below a multi-decade uptrend in the yellow metal near $1675/oz.''
''After all, the hawkish Fed narrative may have driven money manager positioning to multi-year lows, but gold markets still feature an extremely concentrated and bloated position held by a small number of family offices and proprietary trading shops. As prices approach their pandemic-era entry levels, risks of a sharp liquidation event are growing.''
However, since the comments, the jobs data from the US offered some relief for the yellow metal. The headline was a beat but the details in the report were less inflationary and such easing of the tight labour market will help the Fed tame inflation. ''This could potentially reduce its need to tighten rates aggressively, analysts at ANZ Bank argued.
Nonfarm Payrolls showed that US hiring had climbed more than expected in August, albeit, wage growth moderated and the Unemployment Rate ticked higher. The Unemployment Rate came in at 3.7% vs. 3.5% expected and Average Hourly Earnings missed the mark as well, at 0.3% month on month vs. 0.4% expected.
However, Fed funds futures were unchanged after the jobs report and are pricing about a 75% chance that the Fed hikes rates by 75 basis points this month, according to Refinitiv data, which could be supportive for the greenback in the lead into the Federal Reserve this month. For the day ahead, we will be in thin trading due to the long North American Labor Day.
Gold technical analysis
On the four-hour chart, gold is losing its traction but a 50% mean reversion could offer support as it meets the neckline of the bullish M-formation. Also, the Shark harmonic pattern is in play which is a bullish confluence that leaves scope for a deeper correction towards the neckline near $1,750.