XAU/USD extends bounce off $1,640 support amid softer DXY

• Gold price pares the biggest weekly loss in two months while recovering from short-term key support.
• Risk-on mood, market’s rejection of 1.0% Fed rate hike appears to weigh on the XAU/USD amid a sluggish session.
• Optimism surrounding the UK, mixed headlines from China add strength to the metal’s recovery moves.
• Light calendar keeps gold traders confused but bears can keep the reins amid recession fears, central bank aggression.

Gold price (XAU/USD) picks up bids to refresh intraday high near $1,650, consolidating the biggest weekly loss in eight amid Monday’s sluggish Asian session. In doing so, the yellow metal cheers the softer US dollar and the market’s cautious optimism amid a lack of major data/events.

A softer start of the US Dollar Index (DXY) helps gold buyers to consolidate recent losses amid a light calendar day. That said, the DXY drops by 0.26% to around 113.00 by the press time. The greenback’s latest losses could be linked to the cautious optimism in the UK, after the latest political upheaval and comments from the Bank of England (BOE) Governor Andrew Bailey.

Also exerting downside pressure on the greenback’s gauge versus the six major currencies, which in turn favor the XAU/USD buyers, is the market’s latest rejection of the Fed’s 1.0% rate hike in November.

That said, CME’s Fedwatch Tool suggests a nearly 95% chance of the 0.75% Fed rate hike in November.

During the weekend, St. Louis Federal Reserve Bank President James Bullard said, “The US has a serious inflation problem,” the policymaker also adds, “Front loading fed policy is the right strategy.”

It should be noted that the DXY managed to reverse Thursday’s notable losses after upbeat US data and hawkish Fedspeak on Friday. US Retail Sales remained unchanged with 0.0% growth for September versus 0.2% expected 0.4% upwardly revised prior. Further, the preliminary readings of the Michigan Consumer Sentiment Index for October were 59.8, better than the forecasted figure of 59 and 58.6 previous readings. More importantly, the University of Michigan’s 1-year and 5-year inflation expectations increased for October, respectively to 2.9% and 5.1% compared to 2.7% and 4.7% priors in that order.

Amid these plays, S&P 500 Future ignores Wall Street’s downside close and rises half a percent while the US 10-year Treasury yields struggle to extend the latest upside near the 4.0% threshold.

Looking forward, updates from China’s annual Congress meeting and the UK may entertain XAU/USD traders, which in turn suggests more chances for the metal’s further recovery amid a lack of major data/events during the week.

Technical analysis

Gold price rebounds from a three-week-old horizontal support zone, backed by a firmer RSI (14). In doing so, the precious metal prices approach the 61.8% Fibonacci retracement level of September 28 to October 04, around $1,658.

It’s worth noting, however, that the 100-HMA and the 200-SMA, respectively around $1,665 and $1,685, could challenge the XAU/USD upside before convincing the gold buyers.

Alternatively, the $1,642-40 support zone holds the key to gold price declines toward September’s low near $1,615, a break of which could quickly recall the $1,600 to the chart.

Gold: Hourly chart

Trend: Limited recovery expected