Gold Price Forecast: XAU/USD sellers seek acceptance below $1,800 ahead of US Michigan CSI

• Gold price remain mildly offered as bears attack short-term key support line.
• Market’s inaction amid a light calendar restricts immediate XAU/USD moves.
• Inflation, Fed and China are in focus after the recent risk-positive data stream.
• Preliminary readings of August month Michigan Consumer Sentiment Index will be important for clear directions.

Gold price (XAU/USD) stays depressed at around $1,788 as sellers flirt with the immediate support line during Friday’s Asian session. In doing so, the yellow metal hesitates to welcome bears amid a sluggish session and a light calendar, as well as due to the cautious sentiment ahead of the first impressions of the US Michigan Consumer Sentiment Index (CSI) for August, expected at 52.5 versus 51.5 prior.

Also read: Michigan Consumer Sentiment Index Preview: Good news for the dollar but not for households

The XAU/USD prices dropped during the last two consecutive days despite the US dollar’s five-day downtrend as the Fed policymakers resist cheering downbeat inflation data from the US. Also challenging the gold buyers were fears surrounding China, one of the world’s largest commodity users.

On Thursday, US Producer Price Index (PPI) for July tracked the headline Consumer Price Index (CPI) while easing to 9.8% YoY versus 11.3% prior and 10.4% market forecasts. That said, the monthly PPI dropped to the lowest levels since May 2020, to -0.5% compared to 1.0% expected and 0.2% prior, which in turn signaled more easing of inflation fears.

In addition to the recently easing inflation woes, the softer prints of the US Weekly Jobless Claims also portrayed improvement in the employment scenario, tracking the recent job numbers from the world’s largest economy, which in turn helped to build the risk-on mood. That said, US Initial Jobless Claims eased to 262K for the week ending August 6 versus 263K expected and downwardly revised 248K prior.

Recently, President and Chief Executive Officer of the Federal Reserve Bank of San Francisco Mary Daly mentioned that she is open to 75bps rate hike in September. Previously, Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans sounded grim. That said, Fed’s Kashkari mentioned that he hasn't "seen anything that changes" the need to raise the Fed's policy rate to 3.9% by year-end and to 4.4% by the end of 2023. Further, Fed policymaker Evens stated, “The economy is almost surely a little more fragile, but would take something adverse to trigger a recession.” Fed’s Evans also called inflation "unacceptably" high.

On the same line were the headlines surrounding China. Reuters relied on sources to mention that the saying US President Biden rethinks steps on China tariffs in wake of Taiwan response. Additionally, a jump in the coronavirus cases from China, to 700 new confirmed cases in the mainland on August 10 versus 444 a day earlier, also weighs on the pair. Furthermore, Taiwan’s criticism of the “One China” policy and US House Speaker Nancy Pelosi’s support for Taipei also challenged the market optimism.

Against this backdrop, Wall Street began the day on a positive side before closing mixed while the US 10-year Treasury yields rallied 10 basis points (bps) to 2.88% at the latest. It’s worth noting that the S&P 500 Futures print mild gains around 4,215 and the US Treasury yields remain firmer by the press time.

To sum up, gold sellers are in the driver’s seat and are likely to keep reins but need validation from the key US data.

Technical analysis

Gold prices seesaw around a three-week-old support line after reversing from the weekly resistance line, as well as the 61.8% Fibonacci retracement level of the June-July downturn. That said, the RSI’s downside break of the short-term support also keeps sellers hopeful.

However, a convergence of the 50-SMA and the 50% Fibonacci retracement level, around $1,780-79, needs to validate the south-run.

Also acting as strong support is the convergence of the 200-SMA and the 38.2% Fibonacci retracement level, near $1,756.

Meanwhile, recovery moves may initially aim for the 61.8% Fibonacci retracement near $1,804 before challenging an upward sloping resistance line from August 02, close to $1,808 by the press time.

In a case where the XAU/USD rises past $1,808, July’s peak near $1,815 might act as the last defense of gold sellers.

Gold: Four-hour chart

Trend: Further downside expected