Gold Price Forecast: Oversold conditions could risk a XAU/USD correction ahead

Gold price is licking its wounds early Thursday, holding close to the lowest level since mid-March set on Wednesday at $1,973. The United States Dollar (USD) is sitting at ten-month highs against its major peers, tracking the persistent strength in the US Treasury bond yields.

US Treasury bond yields, data and Fedspeak eyed

The US bond market sell-off resumed on Wednesday, triggering a fresh rally in the US Treasury bond yields across the curve, in turn, sending the US Dollar sharply higher. Increased bets that the US economy will likely outperform its peers, in a time where most major central banks are pledging to keep interest rate ‘higher for longer’, support the ongoing US Dollar upward momentum.

Further, a surprise rebound in the demand for the US Durable Goods Orders in August added to the encouraging signs of US economic resilience, boding well for the US Dollar. The US Commerce Department said on Wednesday that the headline Durable Goods Orders rebounded to 0.2% in August, compared with a drop of 0.5% expected and the previous 5.6% decline.

Meanwhile, the US Treasury bond yields also capitalized on the anticipation of a hefty pipeline of US treasury auctions this week and fears of a US  government shutdown. Reuters reported that “Republican US House Speaker Kevin McCarthy on Wednesday rejected a stopgap funding bill advancing in the Senate, bringing closer the fourth partial US government shutdown in a decade,” closing in on the October 1 deadline.

A slew of these factors weighed heavily on the non-interesting-bearing Gold price, smashing it to the lowest level in six months near the $1,970 round level.

In Thursday’s trading so far, the US Dollar is picking up fresh bids on a souring market mood, as worries over China’s property market continue to haunt investors. Earlier in the day, Reuters reported that trading in shares of China Evergrande was suspended, following a report that its chairman had been placed under police surveillance. The news raised concerns over the developer's future as it risks of liquidation mount.

Looking ahead, if risk-aversion intensifies, the US Dollar uptrend could see a fresh leg higher, exacerbating the pain in the USD-denominated Gold price. However, all eyes remain on the US Q2 GDP revision, Jobless Claims and Pending Home Sales for a fresh directive. Markets will also eagerly await a speech by US Federal Reserve (Fed) Chairman Jerome Powell due later in the NA session at 20:00 GMT for any hints on the central bank’s interest rate policy. Several other Fed policymakers are also scheduled to take the rostrum and impact the US Dollar valuation, eventually influencing the Gold price action.

Gold price technical analysis: Daily chart

Gold price confirmed a symmetrical triangle breakdown after closing Tuesday below the upward-sloping trendline at $1,908.

The downside break triggered a fresh sell-off in Gold price, as sellers flexed their muscles and tested the $1,870 key support on acceptance below the $1,900 threshold.

A Death Cross, confirmed earlier in the week after the 50-Daily Moving Average (DMA) crossed below the 200 DMA, justifies the ongoing bearish momentum in te Gold price.

However, the 14-day Relative Strength Index (RSI) indicator has entered the oversold territory, suggesting that a risk of a corrective bounce remains intact.

Any pullback from multi-month troughs will need to find validation at the August 21 low of $1,885. A sustained move above the latter will put the $1,900 mark back on Gold buyers’ radars.

Further up, the previous day’s high of $1,904 could be tested should the recovery gather steam.

Alternatively,  a decisive break below the $1,870 static support could reopen floors toward the $1,850 psychological barrier.