Gold Price Forecast: XAU/USD marches towards $1,785-87 hurdle with eyes on Taiwan, NFP

• Gold price remains firmer for the second consecutive day.
• Mixed sentiment, softer US dollar underpin the XAU/USD rebound ahead of the key US NFP.
• Headlines surrounding Taiwan, recession may join Fedspeak to entertain traders.
• Second-tier US data, ECB Economic Bulletin will also be important to watch for clear directions.

Gold price (XAU/USD) prints mild gains around $1,767, despite the latest retreat from the intraday high during Thursday’s Asian session. In doing so, the yellow metal keeps the previous day’s rebound from the weekly low amid a softer US dollar and the market’s indecision ahead of all-important US Nonfarm Payrolls (NFP), up for publishing on Friday.

The US Dollar Index (DXY) remains indecisive around 106.35 after refreshing the weekly top with 106.82 earlier on Wednesday. That said, mixed US data and Fedspeak also appeared to have weighed on the US dollar of late. Also challenging the greenback could be the market’s cautious optimism that China could overcome the economic difficulties, especially after witnessing the previous day’s Caixin Services PMI for the dragon nation.

On Wednesday, the US ISM Services PMI for July rose to 56.7 from 55.3 prior and the market expectation of 53.5 whereas the final reading of the US S&P Global Services PMI for July dropped to 47.3, marking the first contraction in two years, from 52.7 in June and the flash estimate of 47. Elsewhere, China’s Caixin Services PMI for July also surprised markets with upbeat data.

St. Louis Federal Reserve Bank President James Bullard said, “(There is) still some ways to go to get to a restrictive monetary policy." The policymaker adds that he still wants to get to 3.75 to 4% this year while showing a preference for the type of frontloading.

Other than Fed’s Bullard, Fed Minneapolis President Neel Kashkari and Richmond Fed President Thomas Barkin also joined the league of the Fed hawks to exert downside pressure. However, San Francisco Fed President Mary Daly appeared to have flashed mixed signals and tamed the DXY bulls afterward. The policymaker said, "Markets are ahead of themselves in expecting rate cuts next year."

On a different page, Bloomberg’s news suggesting a lack of support for the US-Taiwan ties also seems to help the gold buyers. The reason could be linked to the Democratic Party members’ ability to stop the US policymakers from mingling more with Taiwan which China doesn’t like, the same could help the market sentiment and the XAU/USD. “The Biden administration is lobbying Democratic senators to put the brakes on a bill that would alter US policy toward Taiwan, including by designating it as a major non-NATO ally, according to people familiar with the matter,” stated the news.

With this, market sentiment remains sluggish after portraying the optimism the previous day. While signaling the mood, the S&P 500 Futures remain directionless near 4,150 and the US 10-year Treasury yields remain pressured at around 2.71%, down three basis points (bps) by the press time.

Moving on, the US Good and Services Trade Balance for June, expected $-80.1B versus $-85.5B prior, as well as the weekly Initial Jobless Claims, expected 259K versus 256K prior, will decorate the calendar. However, major attention will be given to the comments from the ECB and the Fed policymakers, as well as the Sino-American tension over Taiwan for clear directions ahead of Friday’s US NFP.

Given the sluggish sentiment and the US dollar’s weakness, the XAU/USD buyers can stay hopeful.

Technical analysis

Gold price extends the previous day’s rebound from the 38.2% Fibonacci retracement of June-July downturn, around $1,755, amid firmer RSI line.

The recovery moves, however, needs validation from the $1,785-87 monthly horizontal resistance area. That said, the 50% Fibonacci retracement (Fibo.) level near $1,780 can act as an immediate resistance.

In a case where the quote rises past $1,787, the odds of witnessing a run-up towards July 04 swing high near $1,814 can’t be ruled out.

Alternatively, a downside break of the 38.2% Fibo level near $1,755 becomes necessary to recall the XAU/USD bears.

Following that, a convergence of the 50-SMA and a two-week-old ascending trend line, close to $1,750-48, will be crucial to watch for the gold bears.

Gold: Four-hour chart

Trend: Further recovery expected