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XAU/USD sellers offer support at $1,784 on Fed, China jitters

  • Gold prices hit intraday lows, extending pullback from one-month highs.
  • US dollar ticks Treasury yields as Fed policymakers reject after US CPI optimism.
  • Headlines around China also support safe-haven demand for the US dollar.

Gold price (XAU/USD) has low ground near the intraday bottom around $1,784 as bears attack the 50-DMA heading into Thursday’s European session. In doing so, the precious metal will value the US dollar’s recent rebound amid mixed concerns around the US Federal Reserve’s (Fed) next move and China.

The US dollar index (DXY) posted its biggest daily loss in five months, up 0.20% at press time near 105.45, as Fed policymakers failed to cheer Wednesday’s softer US consumer price index (CPI) for July. 8.5% in July compared to 8.7% expected for the year and 9.1% before.

Mary Daly, president of the San Francisco Fed, recently hesitated to declare victory over inflation. In doing so, policymakers joined the likes of Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans. Earlier, the Fed’s Kashkari cited the need to raise the Fed’s policy rate to 3.9% by the end of the year and 4.4% by the end of 2023 as he “didn’t see anything that would change.” Furthermore, Fed policymaker Evans said, “The economy is a bit more fragile, but it would take something adverse to trigger a recession.” The Fed’s Evans also called inflation “unacceptable.”

In addition, talks surrounding China will weigh on XAU/USD prices as the Dragon Nation ranks among the world’s largest gold consumers. Reuters cited sources as saying that US President Biden would reconsider actions on China tariffs in the wake of Taiwan’s response. Additionally, a jump in coronavirus cases from China, to 700 new confirmed cases on the mainland on August 10 and 444 a day earlier, weighed on gold prices. Furthermore, China Customs’ recent rejection of US meat by certain producers and comments by Taiwan’s Foreign Ministry, indicating a rejection of China’s motto of ‘one country, two systems’, have weighed on the prices of the bright metal.

Against this backdrop, S&P 500 futures printed mild gains near 4,220 by press time after Wall Street rallied and US Treasury yields remained largely unchanged the previous day.

Looking ahead, US jobless claims and the monthly Producer Price Index (PPI) for July. Furthermore, Friday’s preliminary readings of the US Michigan consumer sentiment index for August were key to fresh stimulus.

Technical analysis

An apparent downside break of the three-week-old ascending support line, the resistance line around $1,795 now joins the RSI pullback and MACD’s easy bullish bias to tease the XAU/USD bears.

However, a daily close below the 50-DMA support around $1,784 is necessary for the gold price to extend the recent weakness of the April-July downside to the 23.6% Fibonacci retracement level near $1,755.

Conversely, an upward clearance of $1,795 support-turned-resistance is not an open call for gold buyers.

The reason is the existence of a downward sloping resistance line from late April around $1,824.

Gold: Daily Chart

Outlook: Further weakness is expected

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