Gold Price Forecast: Path of least resistance remains to the downside for XAU/USD

Gold broke below the $1800 mark on Tuesday and was pressured by a combination of factors. The progress on COVID-19 vaccine rollouts and the slowing pace of infections has been fueling optimism over a quick global economic recovery from the pandemic. This, along with expectations for a massive US fiscal spending plan, continued boosting investors' confidence and was seen as one of the key factors that undermined demand for the safe-haven precious metal.

The market continued to price in the prospects for the passage of the US President Joe Biden's proposed $1.9 trillion stimulus package. The reflation traded pushed the yield on the benchmark 10-year US government bond to the highest level since February 2020, around 1.30%. A runaway rally in the US Treasury bond yields was seen as another factor that delivered a fatal blow to the non-yielding yellow metal and contributed to the steep intraday fall.

Meanwhile, surging US Treasury bond yields assisted the US dollar to rebound swiftly from three-week lows. The USD was further supported by Tuesday's upbeat Empire State Manufacturing Index, which jumped to 12.1 in February from 3.5 previous and portrayed an upbeat picture for the US economy. The XAU/USD finally settled near the lower end of its daily trading range and dropped to $1887-86 region, back closer to monthly swing lows during the Asian session on Wednesday.

The bearish pressure seems to have abated, at least for the time being, though the near-term bias remains tilted firmly in favour of bearish traders. The USD could gain some follow-through traction if bond yields continue to rally, which, in turn, should act as a fresh bearish catalyst and pave the way for further weakness. Traders might further take cues from Wednesday's release of the US monthly Retail Sales figures, due later during the early North American session. Apart from this, the broader market risk sentiment will also play a key role in influencing the commodity.

Short-term technical outlook

From a technical perspective, the metal, for now, seems to have found some support near a short-term ascending trend-line. A subsequent drop below the $1785 area (monthly lows) will reaffirm the near-term bearish bias and pave the way for a further depreciating move towards extending from November 2020 swing lows support, around the $1764 region. The downward trajectory could further get extended towards the $1739-37 horizontal support.

On the flip side, any meaningful recovery attempt beyond the $1800 mark might now be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the $1808-10 region. That said, some follow-through buying might trigger a short-covering move and push the commodity further towards the overnight swing highs, around the $1825-27 supply zone.