Gold Price Forecast: Falling yields could fuel a sustained break above $1,878 in XAU/USD

Gold price staged an impressive comeback on Wednesday and reversed 75% of Tuesday's sell-off, mainly helped by a sharp pullback in the US Treasury yields across the curve. Worries over the global economic recovery resurfaced, as investors fretted over the implications of earlier than previously thought monetary policy tightening to tackle the rearing inflation beast. The dour market mood ramped up the safe-haven flows into gold and the US Treasuries, weighing heavily on the yields. The resultant retreat in the yields dragged the US dollar index sharply lower from its 16-month highs, with the inflection point being the 10-year rates cracking the key 1.60% level. Discouraging US housing data also added to the greenback’s misery, as investors started to rethink the Fed’s rate hike expectations. The negative sentiment around Wall Street indices also helped the recovery in gold price.

This Thursday, gold price is holding onto the recent advance, biding time before initiating the next upswing. The weakness in the US dollar alongside the yields continues to underpin gold price. The risk-off trading in the Asian equities amid looming China’s property sector concerns and global inflation risks continue to boost’s gold appeal as a safe-haven as well as an inflation hedge. The Fed speculation and inflation concerns will continue to play out, influencing the dynamics in the yields and gold price. Data-wise, the US weekly Jobless Claims will draw some attention amid a sparse docket and a slew of Fedspeak.

Gold Price Chart - Technical outlook

Gold: Daily chart

Gold price is likely to trade in a familiar range between $1,850 and $1,878 in the day, until the bulls find a strong foothold above the June 14 tops of $1,878.

A daily closing above the latter will trigger a fresh advance towards the $1,900 psychological level, above which the horizontal trendline resistance around $1,904 will challenge the bearish commitments.   

The 14-day Relative Strength Index (RSI) is sitting just beneath the overbought region, allowing room for more upside. The 100-Daily Moving Average (DMA) has pierced through the 200-DMA from below, representing a bull cross, adding credence to the bullish outlook on gold price.

On the downside, a breach of the $1,850 demand area could expose the November 11 lows of $1,843. Further south, the previous critical resistance now support at $1,834 will be the level to beat for gold bears.