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Gold Price Forecast: ‘Sell the bounce’ in XAU/USD; technical indicators turn bearish

  • Gold price stabilizes after Tuesday’s steep decline led by the US Dollar rebound. 
  • US debt ceiling progress lifts mood, stunts the US Dollar and US Treasury bond yields recovery.
  • Gold price cracks the 21-Day Moving Average support as the daily RSI turns bearish.

Gold price is attempting a tepid bounce while trading below $2,000 early Wednesday, having incurred heavy losses on Tuesday. The United States Dollar (USD) is fading its recovery momentum amid an improvement in risk sentiment following some progress overnight on the US debt ceiling talks.

US debt ceiling talks to lead risk sentiment, Gold price action

Gold price snapped its rebound and dropped hard on Tuesday, as the upbeat risk tone evaporated amid mounting tensions ahead of the US debt ceiling talks between US President Biden and the congressional leaders on a plan to raise the nation's debt limit and avoid a catastrophic default.

With a negative shift in the market sentiment, traders witnessed a strong resurgent demand for the safe-haven US Dollar, smashing Gold price back below the $2,000 psychological level. The relentless recovery in the US Treasury bond yields on US default fears also weighed on the non-yielding Gold price. The benchmark 10-year US Treasury yields recaptured the 3.50% key level.

So far this Wednesday’s trading, Gold price is looking to stabilize, as investors cheered optimism surrounding President Biden- Republican Kevin McCarthy meeting overnight. Reuters reported that the meeting ended on an upbeat and unexpected note as McCarthy, coming out of the meeting with Biden and other congressional leaders, said, "It is possible to get a deal by the end of the week."

Meanwhile, the US Dollar is struggling to extend the recovery as investors weigh mixed United States Retail Sales data and commentaries from several US Federal Reserve (Fed) policymakers due out a day before. United States Retail Sales rose 0.4%, falling short of the 0.7% growth expected. Excluding autos, Sales increased by 0.4% during the reported period.

Atlanta Fed President Raphael Bostic said that the Fed would need to stay “super strong” in fighting inflation even if the unemployment rate rises later in the year. In contrast, Chicago Fed Austan Goolsbee said it was premature to be discussing interest rate cuts. Thomas Barkin, president of the Federal Reserve Bank of Richmond, told Bloomberg that he would be comfortable with more rate increases if that's what is needed to bring inflation down. Hawkish Fedpseak also helped the US Dollar stage a sharp reversal on Tuesday alongside the rally in the US Treasury yields.

Currently, markets are pricing a 78% probability of the Fed rate hike pause in June and about a 22% chance of a rate cut in July, down from about 33% seen a week ago.

Later this Wednesday, the focus will be on the mid-tier United States Housing Starts and Building Permits data while the Fedspeak will continue to be closely scrutinized alongside the US debt ceiling developments.

Gold price technical analysis: Daily chart

As observed on the daily chart, Gold price faltered its rebound below the descending trendline resistance, then at $2,020, allowing sellers to take over complete control.

As a result, Gold price breached the flattish 21-Daily Moving Average (DMA) at $2,008 on a daily closing basis.

The bearish break of the 21 DMA support exposes Gold price to further downside, with immediate support seen at the bullish 50 DMA at $1,982.

Further, the 14-day Relative Strength Index (RSI) pierced through the 50 level for the downside on Tuesday, currently trading at 47.17, suggesting that the tide has turned in favor of Gold bears.

A sustained break below the 50 DMA cap could call for a test of the static support at $1,977, below which a fresh downswing toward the $1,950 psychological level cannot be ruled out.

Conversely, any recovery attempts will need to find a strong foothold above the previous support now resistance at 21 DMA. Ahead of that, Gold buyers need to reclaim the $2,000 threshold.

Further up, the abovementioned descending trendline resistance, now at $2,010, could challenge bearish commitments.

Author

Dhwani Mehta

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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