Gold Price Forecast: XAU/USD upside appears impulsive beyond $1,930 but sentiment matters

September 04, 2023

Gold Price (XAU/USD) remains mildly bid while picking up bids to reverse the previous day’s pullback from a one-month high amid early Monday. That said, the US Dollar’s retreat amid the US Labor Day Holiday joins the mixedUS–China news to underpin the XAU/USD upside around $1,941 of late. It’s worth noting that Friday’s United States data prod the Gold buyers after the metal refreshed the monthly top. Even so, a lack of hawkish bias about the Federal Reserve (Fed) joins China's stimulus to keep the bullion buyers hopeful, especially when the technical details are favorable to the upside move.

Gold Price edge higher as US Dollar bulls struggle, China announces stimulus

Gold Price remains on the buyer’s radar as the US Dollar buyers appear running out of steam after seven consecutive weekly gains. Adding strength to the bullish bias about the XAU/USD are stimulus measures from one of the world’s biggest Gold customers, namely China.

Looking back, a downward revision to the Q2 US GDP growth and softer PMIs contrasted with the upbeat prints of inflation clues and mostly impressive employment statistics. With this, the US Dollar managed to close on the positive side for the seventh consecutive week despite marking the lowest weekly gain since early July.

On Friday, the headline US Nonfarm Payrolls (NFP) rose to 187K in August versus 170K expected and 157K prior (revised) even as the Unemployment Rate marked an uptick to 3.8% from 3.5% market forecasts and previous readings. Further, the Average Hourly Earnings also eased to 0.2% and 4.3% compared to 0.4% and 4.4% respective priors. Additionally, the US ISM Manufacturing PMI also impressed the US Dollar buyers with the 47.6 figures versus analysts’ estimation of 47.0 versus 46.4 previous readings.

Following the data, Federal Reserve Bank of Cleveland President Loretta J. Mester downplayed the increase in the Unemployment Rate to 3.8% by stating that the level "is still low." The policymaker termed the US job market as strong despite recent rebalancing as she spoke at an event in Germany. About inflation, Fed’s Mester acknowledged that progress has been made but noted it remains elevated.

On the other hand, China’s Caixin Manufacturing PMI for August rose to 51.0 versus 49.3 market forecasts and 49.2 previous readings. On the same line, China’s official NBS Manufacturing PMI for August rose to 49.7 versus 49.4 expected and 49.3 previous readings. However, the Non-Manufacturing PMI came in as 51.0 compared to 51.5 prior readouts and market forecasts of 51.1.

Also, China's central bank, namely the People's Bank of China (PBoC), announced a heavy cut to its foreign exchange reserve requirement ratio (FX RRR) to 4% from 6.0% effective from September 15.

That said, a slew of China banks cut interest rates on Yuan deposits to ease the pressure from lower mortgage rates announced previously. Among them, ICBC, China Industrial Bank, Agricultural Bank of China and Bank of China (BoC) gained major attention.

Additionally, Reuters cited four people familiar with the matter to report that China is likely to step up action to revive the country’s property sector.

Recently, the global rating agency Moody’s cuts its economic growth forecasts for China, as well as revised up the US Gross Domestic Product (GDP) predictions in its latest report while the news about the US-China tension and Beijing’s readiness for more stimulus entertained the Gold traders.

It should be observed that the decline in the benchmark US 10-year Treasury bond yields has been inversely related to the Gold Price in the fortnight. That said, the key bond coupons rose to the highest levels since 2007 before retreating in the last two weeks to 4.18%.

Further, the Wall Street benchmarks also improved in the recent few days, despite Friday’s sluggish closing, which in turn allowed the Gold buyers to keep the reins.

Even so, the US Dollar Index (DXY) managed to post a seven-week uptrend and challenged the XAU/USD upside.

XAU/USD bulls need more clues about Fed policy pivot to keep the reins

Although the US Dollar’s struggle to defend the latest gains joins the China-inspired optimism to underpin the Gold Price upside, traders need more clues to defend the XAU/USD buyers as the sentiment remains fragile. That said, the S&P 500 Futures printed mild losses by the press time and the equity buyers have also lost some of the grounds in the last few days.

As a result, this week’s China inflation data and the US ISM Services PMI will be crucial for Gold traders to watch for clear directions.