Gold Price Forecast: XAU/USD eyes daily close below $1,738 to extend Powell-led downtrend

  • Gold price extends the previous sell-off as US dollar strength remains unabated.
  • US Treasury yields rise on hopes for aggressive Fed tightening, courtesy of Powell.  
  • XAU/USD eyes the July 27 low of $1,712 before attacking the $1,700 mark.

Gold price is accelerating the previous decline at the start of another critical week, heading closer towards the $1,700 threshold. Hawkish rhetoric from global central bankers to continue hiking interest rates until inflation is controlled has triggered a sharp sell-off in the US bond market, driving the Treasury yields through the roof across the time curve. The US two-year yields jump to the highest level since November 2007 to near 3.50% while the benchmark 10-year rates challenge two-month highs above 3.10%. Higher yields reduce the attractiveness of non-yielding gold. Meanwhile, expectations of higher interest rates for longer have dampened risk sentiment, weighing negatively on global stocks while offering extra legs to the ongoing rally in the safe-haven US dollar. The US dollar index sits at a new 20-year high of 109.39, adding 0.50% on the day.

Over the weekend, European Central Bank (ECB) policymakers joined the chorus of raising rates further, tracking the hawkish tone from Fed Chair Jerome Powell during the Jackson Hole Symposium. Powell said on Friday that a restrictive stance was likely to remain in place “for some time,” and “the historical record cautions strongly against prematurely loosening policy.” ECB Governing Council members Francois Villeroy de Galhau, Martins Kazaks and Isabel Schnabel said that more tightening is needed even if Europe’s economy tips into recession. Further, South Korea’s central bank Governor Rhee Chang-yong also noted that If inflation rises, the Bank of Korea (BOK) should put pricing stability first by continuing the tightening path.

Also read: Gold Weekly Forecast: Bears look to retain control as focus shifts to US jobs report

Looking ahead, investors eagerly await the release of Friday’s US Nonfarm Payrolls for fresh hints on the size of the Fed rate hike next month. Powell reiterated in his Jackson Hole speech that “decision on September rate hike will depend on the totality of data since July meeting.” Ahead of the US NFP data, gold traders will also take cues from the US ISM business PMIs and ADP Employment Change print. At the time of writing, markets are pricing a 75% probability of a 75 bps Fed rate hike next month, sharply higher from 61% seem on Friday. Therefore, every US data point will be closely examined by markets, having a significant impact on the dollar valuations and gold price action.

Gold price technical outlook: Daily chart

Gold price cracked the critical rising trendline support at $1,738, which bulls defended on Friday. Daily closing below the latter is needed to confirm a downside break and kickstart a fresh downtrend towards the $1,700 mark.

As well predicted here, bears took out the $1,728 demand area to refresh monthly lows at $1,723. The 14-day Relative Strength Index (RSI) is pointing south below the midline, suggesting that there is more room for additional declines.

Further down, sellers could test the July 27 low at $1,712 should the selling pressure intensify.

On the upside, any recovery attempts will need to find acceptance above the abovementioned rising trendline support turned resistance at $1,738.  

The $1,750 psychological level will be the level to beat for the bulls. Friday’s high of $1,759, around where the bearish 50-Daily Moving Average (DMA) lurks, will be the last line of defense for XAU bears.

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