• A strong pickup in the USD demand prompted aggressive selling around gold on Friday.
• The USD drew some support from elevated US bond yields and hawkish Fed expectations.
• A softer risk tone could lend some support to the safe-haven metal and limit further losses.
• Gold Price Forecast: XAU/USD to maintain range play around $1800 ahead US PCE inflation

Gold witnessed aggressive selling during the early North American session and dived to one-and-half-week lows, around the $1,776 region in the last hour. The US dollar was back in demand on the last trading day of the week and has now reversed a major part of the previous day's dismal US GDP-led slide to one-month lows. This, in turn, was seen as a key factor that weighed heavily on dollar-denominated commodities, including gold.

The USD held on to its strong intraday gains following the release of the softer than expected Core PCE Price Index. The Fed's preferred inflation gauge held steady near 30-year highs in September and came in at 3.6% YoY as against consensus estimates for a modest uptick to 3.7%. The data indicated that consumer cost pressures are getting entrenched and validated expectations the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation.

This, in turn, allowed the yield on the benchmark 10-year US government bond to hold steady above the 1.60% threshold, which further contributed to drive flows away from the non-yielding gold. Apart from this, the latest leg of a sudden fall over the past hour or so could further be attributed to some technical selling below 200-hour SMA. However, a softer risk tone – as depicted by a cautious mood around the equity markets – could extend some support to the safe-haven XAU/USD.

The continuous rise in inflationary pressures comes amid signs of a global economic slowdown and fueled worries about the risk of stagflation. This, in turn, tempered investors appetite for perceived riskier assets, which might hold bearish traders from placing aggressive bets around gold. Nevertheless, the precious metal remains on track to end the week as the focus now shifts to next week's FOMC meeting, where the US central bank is expected to begin tapering its bond purchases.

Technical outlook

From a technical perspective, repeated failures near the $1,810-12 resistance zone and the subsequent fall suggests that the recent positive move has run out of steam. Hence, some follow-through weakness towards testing the next relevant support, near the $1,762 region, remains a distinct possibility. The corrective pullback from multi-week tops could further get extended towards October monthly swing lows, around the $1,745 area.

On the flip side, any meaningful recovery now seems to confront stiff resistance near the $1,790-92 region (100/200-day SMAs confluence) and remain capped near the $1,800 mark. A sustained strength beyond could allow bulls to make a fresh attempt to clear the $1,810-12 barrier and push gold prices towards the $1,832-34 heavy supply zone.

Levels to watch