Forecast for the price of gold: XAU/USD heads for the $1,785-87 barrier with an eye on Taiwan and the NFP

Despite the most recent decline from the intraday high on Thursday during the Asian session, the price of gold (XAU/USD) shows modest rises at $1,767. The result is that the yellow metal maintains the previous day's recovery from the weekly low despite a weaker US dollar and the market's uncertainty ahead of the crucial US Nonfarm Payrolls (NFP), due for release on Friday.

The US Dollar Index (DXY), which earlier on Wednesday re-tested the weekly high with a price of 106.82, is still undecided at 106.35. Nevertheless, recent US dollar weakness also seems to be related to conflicting US statistics and Fedspeak. The market's cautious confidence that China can overcome its economic challenges might also put pressure on the dollar, particularly in light of the previous day's Caixin Services PMI reading for the country of the dragon.

On Wednesday, the US ISM Services PMI for July increased to 56.7 from 55.3 the previous month and the market forecast of 53.5, while the US S&P Global Services PMI for July's final reading fell to 47.3 from 52.7 in June and the flash estimate of 47, signaling the first decline in two years. Additionally, China's July Caixin Services PMI shocked investors with positive information.

According to James Bullard, president of the St. Louis Federal Reserve Bank, "there is still some distance to go to get to a restrictive monetary policy." The decision-maker expresses preference for the sort of frontloading while stating that he still hopes to reach 3.75 to 4 percent this year.

Along with Bullard, Thomas Barkin and Neel Kashkari, the presidents of the Feds in Richmond and Minneapolis, joined the league of Fed hawks to apply downward pressure. The DXY bulls were later subdued, although San Francisco Fed President Mary Daly looked to have sent out conflicting signals. "Markets are ahead of themselves in expecting rate cuts next year," the policymaker added.

On a related page, Bloomberg's report claiming there is little support for US-Taiwan relations also appears to benefit gold purchasers. The Democratic Party members' ability to prevent US politicians from associating further with Taiwan, which China dislikes, may be the cause. This might also benefit market sentiment and the XAU/USD. According to persons familiar with the situation, the Biden administration is pressuring Democratic senators to block a bill that would change US policy toward Taiwan, notably by identifying it as a significant non-NATO ally.

Because of this, market mood is still gloomy despite appearing optimistic the day before. The US 10-year Treasury rates remain under pressure at approximately 2.71 percent, down three basis points (bps) as of press time, while the S&P 500 Futures remain directionless near 4,150, indicating the sentiment.

Following that, the US Good and Services Trade Balance for June is forecast to be $-80.1 billion, down from $-85.5 billion the previous month, and the weekly first claims for unemployment insurance are projected to be 259 thousand, up from 256 thousand. Prior to Friday's US NFP, however, much focus will be placed on the remarks made by ECB and Fed leaders as well as the Sino-American conflict over Taiwan.

The purchasers of XAU/USD might remain optimistic given the subdued mood and the declining US dollar.