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Gold Price Forecast: XAU/USD drops below $1670 on a buoyant US dollar, risk-off impulse

  • Gold price stumbles below $1700, extending its losses underneath the 20-day EMA.
  • Broad US dollar strength keeps the yellow metal on the defensive.
  • Fed’s Evans: Expect the Federal funds rate (FFR) to peak at around 4.50% in 2023; has high hopes to achieve a “soft landing.”
  • Gold Price Forecast: To extend its losses towards $1650 after failing to hold $1700.

Gold price slides below the 20-day EMA, courtesy of a risk-off impulse, as portrayed by US equities trading in the red, as the greenback advances sharply amid the Columbus day holiday, which keeps the US bond market close. At the time of writing, the XAU/USD is trading at $1668.60, below its opening price by more than 1.50%.

A risk-off impulse keeps the greenback in the driver’s seat, as shown by the US Dollar Index (DXY), up by 0.35%, at 113.142. Since October 5, when the DXY hit 110.05, the buck has recovered 2.75%, though it keeps trailing the YTD high at around 114.778. Most of the commodity prices, US dollar-denominated, are under pressure, with oil down by 0.28% and the precious metals remaining heavy.

In the past week, Fed officials reiterated their commitment to bringing inflation to the Fed’s 2% target. On Monday, the Chicago Fed President Charles Evans said that he expects the Federal funds rate (FFR) to end at around 4.5% early in 2023 and then to remain around that level for “some time.” He sounded optimistic that the Fed could achieve a soft landing due to Fed projections of the unemployment rate hitting 4.4% by the end of next year, while the Fed’s inflation measure to fall to 2.8% from August’s 6.2%.

Also, the last week’s US Nonfarm Payrolls report, exceeding estimates, further justifies Evan’s case for the Fed to continue tightening at a large size. Fed’s odds of a 75 bps rate hike are at an 80% chance, according to the CME FedWatch Tool, for the November meeting.

Elsewhere, the US economic calendar will feature further Fed speaking, led by Vice-Chair Lael Brainard. Data-wise, the docket will reveal Wednesday’s Producer Price Index (PPI) for September and FOMC minutes. The next day, traders’ focus will shift to US inflation figures, namely the CPI and unemployment claims. To close the week, US Retail Sales, alongside the University of Michigan Consumer Sentiment, are widely expected.

Gold Price Forecast

Gold is sliding below the 20-day EMA after failing to crack the 50-day EMA on October 4 and 5. Since then, the yellow metal price has tumbled, accelerating its free-fall, to re-test the $1650 figure. Once cleared, it could pave the way towards the YTD low at $1614.92, followed by $1600. Worth noting that the RSI is in bearish territory, with enough room to spare, before reaching oversold conditions.