Gold Price Forecast: Will XAU/USD defend the key $2,635 support?

• Gold price hovers around $2,650 early Tuesday, consolidating the previous decline.    

• Despite lingering Chinese economic risks, the US Dollar pulls back with Treasury bond yields.

• Gold price could find fresh demand as long as a 21-day SMA holds at $2,635. The daily RSI stays bullish.

Gold price is trading modestly flat near $2,650 early Tuesday, licking its wounds after retreating from a six-day high of $2,667 set on Monday.  

Gold price buyers test their luck

The tepid recovery attempt in Gold price is sponsored by a mild correction in the US Dollar (USD) against its major rivals from over two-month highs. Meanwhile, retreating US Treasury bond yields on renewed haven flows into the government bonds exert downward pressure on the USD, allowing Gold price buyers to briefly come up for air.

Amid a quiet Asian affair, China’s economic worries persist and dent risk sentiment. The latest data showed that Chinese exports grew at the slowest pace in five months in September. Further, a lack of specifics on China’s fiscal stimulus announced last Saturday remains a drag on investors’ confidence.

However, it remains to be seen if Gold price builds on the rebound, as markets continue to bet on a smaller – 25 basis points (bps) interest rate cut by the US Federal Reserve (Fed) in November, with a probability of such a move seen at about 86%, according to the CME Group’s FedWatch Tool.

The Greenback extended its previous week’s advance and hit its highest in over two months across its competitors after Fed Governor Christopher Waller said Monday urged “more caution” on rate cuts ahead, citing recent economic data. “Whatever happens in the near term, my baseline still calls for reducing the policy rate gradually over the next year,” Waller added.

Joining the chorus, Minneapolis Fed President Neel Kashkari said on Monday that the monetary policy is still in a restrictive stance, adding further “modest” rate cuts could be appropriate, per Reuters.

Also, Gold price could face headwinds from easing geopolitical tensions between Israel and Iran after the Washington Post (WaPo) cited two officials familiar with the matter, as saying that Israeli Prime Minister Benjamin Netanyahu told the US that Israel would strike Iranian military, not nuclear or oil, targets. The report suggests that there will be a more limited counterstrike aimed at preventing a full-scale war.

Attention now turns toward speeches from more Fed policymakers for fresh trading impetus in the US Dollar and the Gold price, as full markets return later in the American session on Tuesday. Gold traders could also resort to position adjustments ahead of Thursday’s US Retail Sales data release.

Gold price technical analysis: daily chart

Gold price stays supported above the key 21-day Simple Moving Average (SMA) support, now at $2,635, so far this week.

The 14-day Relative Strength Index (RSI), however, holds firm above the midline, suggesting that any dip in Gold price could be a good buying opportunity in the near term.

If the Gold price recovers, the next bullish target is seen at the previous high of $2,667, followed by the intermittent high at $2,670.

Further up, the record high at $2,686 will come into play.

Conversely, the immediate support is seen at the 21-day SMA at $2,632, below which the three-week lows near the $2,600 threshold will be tested.

A sustained break below the latter could extend the downside toward the September 20 low of $2,585.