Gold Price Forecast: XAU/USD remains under pressure below $1,940, decline looks supported

• The price of Gold is moving lower on Tuesday for the second day in a row, although it lacks continuation.
• Optimism around further stimulus from China continues to weigh on the safe-haven yellow metal.
• Expectations that the Federal Reserve will pause its rate-raising cycle should help limit the decline.

The price of Gold (XAU/USD) moves with a slight negative bias for the second day in a row on Tuesday, although it lacks continuation and remains within a familiar range held for the last week. XAU/USD is currently sitting just below the $1,940 level, down less than 0.10% on the day, and is pressured by a combination of factors.

Despite signs of easing in the US labor market, the Federal Reserve (Fed) is expected to keep interest rates rising for longer. On the other hand, the markets continue to assess the possibility of a further rise of 25 basis points (bp) at the end of this year. This, in turn, continues to support high US Treasury yields, which provides some support for the US dollar (USD) and weighs on the price of gold, which does not perform.

Apart from this, a positive risk tone, bolstered by hopes that China will announce more stimulus to underpin a slowing economic recovery, reduces demand for safe-haven gold. It’s worth remembering that China increased local dollar liquidity and eased some mortgage rules last week to support the struggling real estate sector. In addition, the Chinese company Country Garden Holdings reached an agreement with the debt holders to defer some payments that were due on Saturday.

Separately, the National Development and Reform Commission (NDRC), China’s main economic planning body, announced on Monday that it would create a specific department to bolster the country’s faltering private economy. This further boosts investor confidence and continues to support the underlying bullish sentiment around the stock markets. However, the fall in the price of gold seems supported by expectations that the Fed is nearing the end of its rate hike cycle.

In fact, the US central bank is expected to keep interest rates unchanged at its September policy meeting. These expectations were boosted by mixed US employment data. The better-than-expected NFP headline data was offset by a downward revision to the previous month’s data and an unexpected rise in the unemployment rate. In addition, the average earnings per hour fell from 4.4% annual to 4.3%, which points to a slight deterioration in the labor market.

This gives the Fed less room to further raise interest rates, which in turn discourages dollar bulls from opening new positions and acts as a tailwind for the dollar-denominated price of gold. Therefore, it will be prudent to wait for strong follow-through to selling before confirming that the recent rally from the $1,885 area, or the lowest level since March 13, has ended and opening aggressive short positions in around XAU/USD.

Gold technical levels to watch