The document discusses the short-term technical outlook for gold (XAU/USD). It notes that gold edged lower on Thursday due to a stronger US dollar, but lacked strong follow-through selling. Technically, gold has formed a downward sloping channel on the 1-hour chart, which is categorized as a bullish continuation flag pattern. However, indicators have not confirmed a bullish bias yet. A sustained break above the channel resistance near $1,795 could lead to further gold price appreciation.

1. Bullish Flag Pattern In The Making
For XAU/USD

2. Points To Be Covered Today:
• Gold Edged Lower On Thursday
• The US Dollar
• Short-Term Technical Outlook
• Inflation Accelerates In June: Will Gold Finally
React?
• What Does It All Imply For The Gold Market?

3. Gold Edged Lower On Thursday
• Stronger follow-through USD buying
prompted some selling around gold on
Thursday.
• COVID-19 jitters, the risk-off environment
helped limit losses for the safe-haven metal.
• Gold edged lower on Thursday and slipped to
three-day lows, albeit lacked any strong
follow-through selling.

4. The US Dollar
• The US dollar shot to over nine-month tops in
reaction to Wednesday's FOMC meeting
minutes, which indicated that the Fed is on
track to roll back its pandemic-era stimulus
later this year.
• Policymakers thought that the benchmark of
substantial further progress criterion has been
met in terms of inflation and maximum
employment.

5. The US Dollar - I
• Investors now seem convinced that the US
central bank is comfortable to start reducing
the pace of its bond purchases, provided that
the economic recovery remains within
expectations.
• This, in turn, provided a goodish lift to the
greenback and undermined the dollar-
denominated commodity.

6. The US Dollar - II
• The USD maintained its strong bid tone after
data released from the US showed that Initial
Weekly Jobless Claims dropped to a 17-month
low of 348K during the week ended August
14.
• This, to a larger, extent, offset the
disappointing release of the Philly Fed
Manufacturing Index, which fell to 19.4 in
August from 21.9 in the previous month.

7. The Conference Board's Leading Index
• Separately, the Conference Board's Leading Index
jumped 0.9% in July and suggested that the
economy is set to continue to expand at a rapid
pace in the fall.
• The board expects the US economy to grow 6%
for the full year, though the Delta variant and
rising inflation could act as a headwind in the
months ahead.
• Nevertheless, the data remained supportive of
the intraday USD positive move.

8. The Prospects Of The Fed
• Meanwhile, the prospects of the Fed
cutting back its massive stimulus
spooked investors.
• Apart from this, concerns about the
spread of the highly transmissible Delta
variant of the coronavirus took its toll on
the global risk sentiment.

9. Traditional Safe-haven Assets
• This, in turn, extended some support to
traditional safe-haven assets, rather assisted the
precious metal to regain some positive traction
during the Asian session on Friday.
• In the absence of any major market-moving
economic releases from the US, the focus now
shifts to the Jackson Hole Symposium scheduled
for 26 to 28 August.
• In the meantime, the XAU/USD is more likely to
remain confined in a broader trading range held
since the beginning of this week.

10. Short-Term Technical Outlook
• From a technical perspective, the recent price
action constitutes the formation of a
downward sloping channel on the 1-hour
chart.
• Against the backdrop of a strong rebound
from multi-month lows, the mentioned
channel could be categorized as a bullish
continuation flag pattern.

11. Short-Term Technical Outlook- I
• However, technical indicators on the
daily chart – though have recovered from the
negative territory – are yet to confirm a bullish
bias.
• This makes it prudent to wait for a sustained
break through the channel resistance before
positioning for any further appreciating move.

12. Short-Term Technical Outlook - II
• A subsequent strength beyond the weekly
tops, around the $1,795 region, and the
$1,800 mark will reaffirm the bullish bias.
• The commodity might then surpass an
intermediate hurdle near the $1,812-13
region, or the very important 200-day SMA,
and aim to challenge the double-top
resistance, around the $1,832-34 zone.

13. Short-Term Technical Outlook - III
• On the flip side, the overnight swing low,
around the $1,775 region now seems to
protect the immediate downside ahead of the
trend-channel support near the $1,770 area.
• This is closely followed by 200-hour SMA,
around the $1,760 area, which if broken
decisively will shift the bias in favour of
bearish traders.

14. Short-Term Technical Outlook - IV
• The next relevant support is pegged near
the $1,751 horizontal zone.
• The downward momentum could
further get extended towards the $1,718-
17 region before the metal eventually
drops back to challenge the $1,700
round-figure mark.

15. Short-Term Technical Outlook - V

16. Inflation Accelerates In June: Will
Gold Finally React?
• Inflation surged in June to 5.4%. It may retrace
soon, but there’s a good chance that it will
increase again later, boosting gold at last.
• The inflation monster has reared its ugly head.
The CPI annual rate surged to 5.4% in June,
accelerating from already mind-blowing 5% in
May.
• It was the hottest pace since the Great
Recession.

17. Will Gold Finally React?
• However, Powell and his colleagues from the
FOMC still claim that inflation will only be
temporary.
• As it was boosted by the reopening from the
Great Lockdown, while others predict a replay
of the stagflation from the 1970s.
• Who is right?

18. Some Inflation Measures Will Decline
• Well, it’s true that some inflation measures will
decline in the near future.
• After all, the economy faces supply chain
bottlenecks, which are causing price spikes.
• The global shortage in the supply of
semiconductors chips is one of the temporary
problems that led to the annual 45.2% spike in
the price of used cars in June, accounting for
more than one-third of the surge in the overall
index.

19. What Does It All Imply For The Gold
Market?
• The impact of inflation might be negative. This is because the
markets will eventually react to higher inflation and the more
hawkish Fed.
• So, the bond yields will rise, increasing the opportunity costs of
holding gold.
• However, after some time, higher inflation will become disruptive
for the economy.
• Either real household incomes or corporate profits will decline
(depending on the companies’ ability to pass surging costs), while
higher interest rates will trigger some defaults.
• When inflationary psychology sets in and people start to worry
about all the bad consequences of inflation, gold should shine.
• So far, the party goes on; but a hangover lurks just around the
corner.

20. Bullish Flag Pattern In The Making
For XAU/USD

21. Thanks for listening
Bullish Flag Pattern In The Making
For XAU/USD