Gold Price Forecast: XAU/USD bulls need to move in fast before bears completely take over

• The gold bears have taken charge at the start of the week on a stronger US dollar ahead of more critical US events.
• The neckline of the H4 M-formation near $1,740 remains vulnerable to a test and break thereof.
•  A move beyond $1,740 will open the risk of a run on the highs of Friday through $1,750 and then $1,759.60.

The gold price has been pressured by a resurgence in the greenback at the start of the trading week. The US dollar has torn through last week's highs and had denied the bears in the forex space that were in anticipation of corrections. At the time of writing, DXY, a measure of the US dollar vs. a basket of major currencies is up by over 1% and oscillates around 108 the figure.

Spot gold is moving in on the prior lows, July 8, of $1,729.98. It has made a low of $1,733.92 so far on the day and is currently down by 0.48% at $1,734.09. Sentiment had been brewing, supportive of gold, that the market may have over-estimated the extent to which the Federal Reserve will hike rates this cycle. However, a stronger than expected US June Nonfarm Payrolls report has reinforced expectations for another 75 bp Fed rate hike in July which is giving rise to demand in the greenback at the open before more critical US data this week. 

Key US calendar events

The main event will be the publication of June’s consumer Price Index report. Analysts at the National Bank of Canada argue that ''the food component likely remained very strong given severe supply constraints globally, and this increase may have been compounded by sharply higher gasoline prices. As a result, headline prices could have increased 1.2% MoM, lifting the year-on-year rate to a 40-year high of 8.8%.''

US Retail Sales will also be important. A recovery in June is expected, following the series' first contraction this year in May. ''Spending was likely aided by another firm showing in gasoline station sales and a rebound in the auto segment,'' analysts at TD Securities said. ''We also look for another gain in the eating/drinking segment as consumers continue to transition away from goods. That said, control group sales likely fell again.''

Meanwhile, the analysts at TDS are highly bearish on the precious metal. Noting that ''gold bugs are falling like dominoes, with selling flow spreading across participants as CTA trend followers join into the vacuum'' they add that  ''a major capitulation event may be unfolding in gold.''

''We see evidence that the steepest outflows from broad commodity funds since the Covid-19 crisis may be catalyzing a series of cascading liquidations from various speculative groups. This argues for substantial downside for gold in the coming sessions as participants are forced to sell in a vacuum.''

Gold technical analysis

The price action in gold has started to erode a pre-market-open corrective bias analysis on the 4-hour charts. 

The spring was identified at around $1,730. However, the market is moving in on this level, so while it still remains valid until it is breached, the price behaviour at the start of this week is putting the bullish thesis in jeopardy. With that all being said, the M-formation is a bullish reversion pattern that could be the bulls get of jail free card:

The spring will still be intact if the bulls continue to correct into the neckline of the M-formation near $1,740. A move beyond there will open the risk of a run on the highs of Friday through $1,750. This will then expose the vulnerability of the price imbalance between there and $1,759.60. On the downside, a break of the lows opens the risk of another significant sell-off towards the monthly lows of $1,676.