Gold Price Analysis: XAU/USD drops below $1780 amid technical selling, remains within recent ranges ahead of key events

• Spot gold broke below a near-term uptrend on Thursday and subsequent technical selling saw it dip under the $1780 level.
• But gold remains within this week's ranges amid caution ahead of key risk events, including US inflation and the Fed.

Spot gold (XAU/USD) prices have been under pressure in recent trade, with the precious metal dipping from the mid-$1780s to current levels below the $1780 mark over the past few hours. Spot prices are now down about 0.3% on the day, with the selling mainly driven by technical factors and perhaps some dollar strength as opposed to anything happening in US bond markets.

Spot gold recently broke below a short-term uptrend that had been in play since this time last week, and the associated technical selling was enough to push prices under $1780, though not enough to test earlier weekly lows around $1772. The dollar has also seen a modest pick up on Thursday, with the DXY able to recover back above 96.00, though recent upside momentum has stalled in recent trade despite the strong initial weekly jobless claims number since 1969. A stronger US dollar makes dollar-denominated spot gold more expensive for purchase by the holders of foreign currencies, thus reducing its demand.

Key risk events loom

Both the US dollar and spot gold prices have remained within this week’s ranges on Thursday, which is not overly surprising given the important events coming up that will shape the macro narrative. First up, US Consumer Price Inflation data is set to be reported on Friday, with the headline YoY rate of inflation seen rising to 6.8%. The Fed has grown increasingly uncomfortable with inflation at such elevated levels, hence why Fed Chair Jerome Powell said the description “transitory” would be dropped and said it would be appropriate to discuss speeding the QE taper at next week’s meeting.

Speaking of, that will be the next key event on the macro horizon (for gold, the dollar and US yields, anyway). Markets now fully expect the bank to announce plans to accelerate the pace of its QE taper next week, while the tone on inflation and the potential path for rates will be closely eyed, as will the bank’s updated economic projections and dot-plot.

As inflation persists at elevated levels, and with FOMC members for now seeing Covid-19 variant risks as more inflationary than anything else, risks are clearly tilted towards the bank opting to start hiking rates sooner rather than later. The gold bears will be hoping for a hawkish surprise in the coming days, which would likely see the precious metal test recent lows in the $1760 area.