Gold Price Forecast: XAU/USD hovers around 200-day SMA, upside potential seems limited

• Gold price gains some positive traction on Thursday, albeit lacks follow-through.
• A softer risk tone benefits the safe-haven XAU/USD amid subdued USD demand.
• Bets for more Fed rate hikes to act as a tailwind for the buck and cap the upside. 

Gold price shows some resilience near the very important 200-day Simple Moving Average (SMA) and attracts some buying during the Asian session on Thursday. The XAU/USD currently trades just below the $1,920 level, up nearly 0.15% for the day, and for now, seems to have snapped a three-day losing streak to over a one-week low touched on Wednesday.

Concerns about the worsening economic conditions in China, along with persistent US-China trade tensions, continue to weigh on investors' sentiment. This is evident from a generally weaker tone around the equity markets and turns out to be a key factor that benefits the precious metal's safe-haven status. Apart from this, subdued US Dollar (USD) price action lends additional support to the Gold price, though any meaningful appreciating move still seems elusive.

The prospects for further policy tightening by the Federal Reserve (Fed), bolstered by the upbeat US macro data on Wednesday, should limit any meaningful USD corrective decline and cap gains for the XAU/USD. The Institute for Supply Management (ISM) reported that business activity in the US services sector unexpectedly picked up pace in August and its non-manufacturing PMI rose from 52.7 in July to 54.5 last month – the highest reading since February.

Additional details of the report showed a rise in new orders, pointing to a resilient US economy, and higher Prices Paid sub-component, which was seen as potential signs of still-elevated inflation pressures. This increased the odds for one more 25 basis points (bps) Fed rate hike move by the end of this year, which, in turn, pushed the yield on the benchmark 10-year US government bond closer to the August 23 peak and the USD to its highest level since March 9.

The aforementioned fundamental backdrop makes it prudent to wait for some follow-through buying around the Gold price before confirming that the recent pullback from a one-month peak, around the $1,953 area touched last Friday, has run its course. On the flip side, acceptance below the technically significant 200-day SMA is needed to reaffirm the negative bias. Traders now look to the US Weekly Initial Jobless Claims data to grab short-term opportunities.

Technical levels to watch