Gold Price Forecast: XAU/USD pokes monthly resistance above $1,700, Fed’s Powell eyed

• Gold price defends recovery from seven-week-old support line, grinds higher of late.
• Pre-event pullback of US dollar helped XAU/USD buyers despite mixed US data, fears of recession.
• Fed’s Powell could renew US dollar strength amid hawkish expectations.

Gold price (XAU/USD) grinds higher as bulls attack a short-term key hurdle surrounding $1,718 during the initial hour of Thursday’s Asian session. The yellow metal marked the biggest daily gains in over a week the previous day after the US dollar witnessed a pullback from the 20-year high during the US session, after initially refreshing the peak.

That said, the US Dollar Index (DXY) jumped to the highest levels in two decades before retreating to 109.60 by the end of Wednesday’s North American session. While the greenback earlier cheered the risk-off mood and the hawkish Fed expectations, the cautious mood ahead of Fed Chairman Jerome Powell’s speech and mixed data seemed to have trigged the DXY pullback.

Hawkish hopes from the European Central Bank (ECB) and a narrowing trade deficit appeared to have weighed on the US dollar before a few hours.

The ECB is likely to lift the benchmark rates by 75 basis points (bps) in today’s monetary policy meeting as the energy crisis propels inflation to a record top. The challenge is in the form of the recession but the latest improvement in the data seemed to have favored the bloc’s currency, which in turn weighed on the US dollar and favored the XAU/USD.

The Eurozone’s final reading of the Gross Domestic Product (GDP) rose by 0.8% QoQ in the three months to June of 2022 (Q2 2022) vs. 0.6% initial forecasts. That said, the YoY figures also improved to 4.1% in Q2 vs. 3.9% marked in the initial forecasts. On the other hand, US Goods and Services Trade Balance improved to $-70.7B in July from $-80.9B prior, versus $-70.3B forecasts. Further, the Good Trade Balance deteriorated to $-91.1B from $-89.1B marked in July.

Amid these plays, Wall Street closed positive and the yields retreated, which in turn weighed on the gold price.

Moving on, risk catalysts will be crucial for the XAU/USD prices ahead of the key ECB decision and a speech from Fed’s Powell. It’s worth noting that hawkish hopes from the ECB and the Fed may test XAU/USD bulls ahead of the event but the ultimate result is likely to weigh on the metal prices as the Fed is comparatively better placed than the ECB.

Technical analysis

Gold price rebounds from the nearly two-month-old support line amid bullish MACD signals and firmer RSI (14) to poke a downward sloping resistance line from August 12, around $1,718.

Given the firmer oscillators backing the XAU/USD recovery, the prices are likely to extend the latest run-up towards crossing the immediate hurdle. However, the convergence of the 200-EMA and the 50% Fibonacci retracement level of late July to early August upside, near $1,745, could challenge the metal’s further upside.

It’s worth noting, however, that the late August swing low near $1,728 appears to lure short-term gold buyers.

Meanwhile, pullback moves may witness the 78.6% Fibonacci retracement level of $1,707 as immediate support before testing the aforementioned support line from late July, around $1,690 by the press time.

Following that, the yearly low surrounding $1,680 could become the last defense of the gold buyers.

Gold: Four-hour chart

Trend: Limited recovery expected