Gold Rallies into Key Resistance, Will the 50-day MA Cap Further Upside?

XAU/USD, XAG/USD PRICE FORECAST:

MOST READ: US Dollar on the Ropes with Yen Leading the Way. AUD, NZD and GBP Piled In

Gold has put in significant gains in the Asian session rising around $10 from session lows after finding support of the 200-day MA. A weaker start to the week by the Dollar Index (DXY) seems to be driving proceedings with the Dollar Index coming of its eighth successive week of gains, its best run since 2005.

Currency Strength Chart: Strongest – JPY, Weakest – USD.

Source: FinancialJuice

FED RATE HIKE EXPECTATIONS AND SOFT-LANDING POTENTIAL

The bounce this morning is a welcome reprieve for Gold bulls following last week which saw rate hike expectations raise slightly following a slew of positive data. However, over the weekend reports out suggest the Fed are concerned with raising rates too high now as they are seeing significant signs that inflation is beginning to move in the right direction. This may mean a more cautious approach moving forward as the Fed look likely to hold in September to allow them more time to gauge the data over the coming weeks. US Treasury Secretary Janet Yellen was positive in her assessment of recent data as well saying she sees the potential for a ‘soft landing’ with inflation to come down and not have a significant impact on the US labor market.

Time will tell though as sceptics will point to diminishing savings and the end of the student debt repayments as a cause for concern. There have been the naysayers who have pointed to a stark deterioration in US data in Q4 as the aforementioned issues come into play. I for one see the potential for the labor market to remain robust but I do believe the US may face other challenges in Q4 and a potential slowdown in demand which could have an impact on retail sales and GDP growth in Q4. This will be something to pay attention to moving forward.

RISK EVENTS

It is a quiet start to the week in terms of risk events and it could turn out to be the calm before the storm. US CPI data due out on Thursday has the potential to create a storm and stir up volatility as we approach the Fed meeting next week. We do also have PPI and Retail Sales data from the US which will provide further insights for the Fed.

For now, I expect the DXY to continue to drive gold prices in the early part of the week with continued weakness likely leading to further upside for the precious metal.

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GOLD TECHNICAL OUTLOOK

Form a technical perspective, Gold prices appear to have printed a higher low following the bounce of the 200-day MA. The recent lows around the $1885 handle printed in August could serve as a swing point for the next move to the upside which has remained under pressure since breaking below the $2000 psychological mark in May. Will the precious metal have the legs to regain the $2000/oz mark?

Well firstly, immediate resistance lies just above current price at the $1932 which is the 50-day MA before attention turns to the 100-day MA resting around the $1950 handle. Such a move would also see Gold break out of the descending trendline in play with $1980 a potential target.

Looking toward the downside and immediate support is provided by the $1925 handle before the 200-day MA around $1919. A break of these key support areas could result in a retest of the $1900 psychological level and potentially lower. Make or break week for the precious metal and one which could give hints at a directional bias for Q4 as well.

Gold (XAU/USD) Daily Chart – September 11, 2023

Source: TradingView, Chart Prepared by Zain Vawda

IG CLIENT SENTIMENT

Taking a quick look at the IG Client Sentiment, Retail Traders are Overwhelmingly Long on Gold with 69% of retail traders are currently LONG on Gold. Given the Contrarian View to Crowd Sentiment Adopted Here at DailyFX, is this a sign that Gold may continue its fall?

For a more in-depth look at GOLD client sentiment and changes in long and short positioning download the free guide below.

Written by: Zain Vawda, Markets Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda