(Dhwani Mehta – FXStreet)
– Gold price fails to build onto Tuesday’s dead cat bounce amid USD resurgence.
– Recession fears remain alive but focus shifts to Fed’s Jackson Hole Symposium.
– XAU/USD is seen at a critical juncture as bull-bear tug-of-war could set in.
Gold price is treading water below $1,750 so far this Wednesday, struggling to extend the previous rebound amid resurgent US dollar demand. Although the renewed downtick in the US Treasury yields is capping any downside attempt in the bright metal. Investors reassess the risks of an imminent recession worldwide after the euro area, the UK and the US Preliminary S&P Global business PMIs pointed to the extended downturn in economic activity. In light of this, traders refrain from placing any directional bets on the bullion, with the Fed’s Jackson Hole Symposium just a day away. The market’s pricing of an outsized September Fed rate hike has dropped to 48% after the latest weak American data. On Monday, the CME FedWatch Tool showed a 55% chance of a 75 bps rate increase next month. Gold bulls are cheering reduced expectations of Fed Chair Jerome Powell hinting at a hawkish outlook on policy tightening. But they are reminded that the King dollar continues to reign supreme amid increased demand for safety, courtesy of recession fears and mounting China worries. The world’s second-largest economy is battling covid and an energy crisis, which is significantly affecting its growth outlook.
After starting the week on a wrong footing, XAU/USD made a decent comeback on Tuesday, as the dollar was smashed with the yields on disappointing US economic news. Data showed sales of new homes plunged to a 6-1/2-year low in July while a survey from S&P Global showed its measure of private sector business activity fell to a 27-month low. Markets started pushing back their hawkish expectations from Powell’s speech at the Jackson Hole Economic Symposium due on Friday. Additionally, the rebound in the EUR/USD pair, amidst a report that the Nord Stream 1 pipeline will not be shutting down for three-day maintenance at the Portovaya offshore compressor station, exerted further downside pressure on the greenback.
Gold price technical outlook: Daily chart
Gold price closed Tuesday above $1,744, the 50% Fibonacci Retracement (Fibo) level of the recovery from yearly lows of $1,681 to the August 10 high of $1,808.
However, bulls failed to find acceptance above the $1,750 psychological level, recalling bears this Wednesday. The 14-day Relative Strength Index (RSI) is turning south once again while below the midline, suggesting that the downside pressure could build up in the sessions ahead.
Adding credence to the bearish bias, the 50-Daily Moving Average (DMA) is fast approaching the 21 DMA from above.
The golden ratio – 61.8% Fibo of the same ascent at $1,729 is now on sellers’ radars. A sustained break below the 61.8% Fibo support will open up the downside towards $1,700 mark.
On the flip side, bulls need a daily closing above the $1,750 psychological level, above which the 38.2% Fibo resistance at $1,760 will be probed.
Further up, the meeting point of the 21 and 50 DMAs at $1,769 will be a tough nut to crack for XAU bulls.