Gold Price Forecast: XAU/USD bears keep reins below $1,800, US ISM PMI eyed

• Gold remains pressured following the heaviest daily fall in a fortnight.
• US dollar remains firmer as reflation fears, Fed tapering tantrums strength.
• Risk catalysts join US activity data to keep traders busy.

Gold (XAU/USD) prices stay depressed around $1,781 following the first weekly negative closing in three. That said, the yellow metal prints 0.10% intraday loss by the early Asian session on Monday.

The fresh fears over inflation and the Fed tapering recently underpinned the US dollar and negatively affected gold prices. Friday’s Core PCE Inflation data, the Fed’s preferred inflation gauge, remained firmer around 3.6%, versus a 3.7% market forecast, bolstered traders’ concern over the US inflation. The escalating price pressure could also be sensed in the latest speech from Fed Chairman Jerome Powell, on October 22, where he dumped ‘transitory’ concern for inflation.

The US-China tussles also gain momentum as the US joins hands with the European Union (EU) over steel and aluminum tariffs to challenge Beijing’s steel industry, which in turn back the US dollar’s safe-haven demand and tame the gold prices.

Also, fears that escalating economic hardships in China, be it from Evergrande or energy crisis, could ease demand from one of the top two gold consumers tease the commodity sellers. Recently showing China’s hardships was the official PMI data for October. As per the release, the headline NBS Manufacturing unexpectedly dropped to 49.2 in October from 49.6 booked in September, versus 49.7 forecast. Further, the Non-Manufacturing PMI fell to 52.4 in the reported month from September’s reading of 53.2 and against the expectations of 52.9.

It should, however, be noted that the World Gold Council (WGC) report citing increased gold demand from India and hopes of more intake joins the progress in the US stimulus talks to challenge the gold bears of late. "The fourth quarter is likely to be one of the best quarters in recent years. Pent-up demand, softening of gold prices and weddings will drive the demand," Somasundaram PR, regional chief executive officer of WGC's Indian operations, per Reuters.

Amid these plays, market sentiment remains mixed as the equities poke record tops and the yield curve flatten to push hopes of monetary policy tightening. At the latest, the S&P 500 Futures rise 0.30% whereas the Wall Street benchmarks remained positive on Friday.

Looking forward, US ISM Manufacturing PMI for October, expected 60.4 versus 61.1, will be eyed after the recent firming of activity data and amid Fed tapering chatters. Also important will be the headlines covering China, US stimulus and inflation.

Technical analysis

Gold breached $1,785 support confluence, now resistance, comprising 100-DMA and an ascending trend line from October 12.

In addition to the support break, receding bullish bias of the MACD and steady RSI, not to forget a downside break of 61.8% Fibonacci retracement (Fibo.) of September’s fall, also favor the gold sellers.

However, 50% Fibonacci retracement level and early October high, respectively around $1,778 and $1,770, may probe short-term bears ahead of directing them to $1,760 and October’s low near $1,746.

Should gold prices refrain from bouncing off $1,746, the downside can aim at late September’s swing low near $1,737 and $1,721.

Meanwhile, the corrective pullback may struggle to regain $1,785 support-turned-resistance while 61.8% Fibo. and October’s high, respectively near $1,791 and $1,813, could challenge gold buyers afterward.

Overall, gold buyers seemed to have tired during late October and finally shown the sign of defeat with Friday’s downside break of $1,785.

Gold: Daily chart

Trend: Further weakness expected