Gold Price Forecast: XAU/USD extends losing spree as US bond yields hold ground
- Gold weakens further to near $4,115 as US bonds yields regain ground.
- Rising oil prices due to energy supply risks are lending support to US treasury Yields.
- Next trigger for US bonds Yields will be Q3 earnings reports from US hyperscalers.
Gold extends its losing streak for the fourth trading day on Wednesday, trading 0.2% lower to near $4,115 in the Asian session. The precious metal is under pressure as United States (US) Treasury Yields on the back of significant gains in oil prices in past few weeks.
As of writing, 10-year US Treasury Yields are up 0.3% to near 5.13%. US bond yields have rebounded from its four-week low of 5.04% posted last week. Technically, higher yields on US-backed securities diminish the appeal of non-yielding assets, such as Gold.
What is fuelling oil prices?
Oil prices continue to attract risk premium in the wake of continued Middle East tensions. In the Asian trade on Wednesday, the WTI Oil price is up 1.1% to near $99.00, backing weakness in demand for US bonds by prompted fears of elevated global inflation.
On Tuesday, oil prices witness profit-booking after an unconfirmed report said Qatar and Pakistan had offered a "middle ground" plan to the US and Iran that met the demands of both sides. However, they reversed the course when Iran claimed these reports as “false”, but confirmed that negotiations with the US are ongoing through indirect channels.
Iran's Foreign Minister Abbas Araghchi said that indirect negotiations with the United States (US) are continuing through intermediary countries, including Pakistan and Qatar,
A further increase in oil prices could force financial markets to reassess Federal Reserve (Fed) interest rate expectations for the October, where it seems all set to leave them unchanged in the 3.75%-4.00% range.
Meta Q3 Earnings awaited
As financial market participants have started taking Artificial Intelligence (AI) spending plans by US hyperscalers into consideration for determining the direction of US Treasury Yields, investors should brace for volatility ahead of Meta Q3 earnings releasing later in the day.
According to Goldman Sachs, Meta, one of five AI hyperscalers, is expected to increase its combined capital expenditure to about $1.2 trillion next year, Reuters report.
Significant corporate borrowings by US hyperscalers to fund their AI plans have been a major contributor to surging US bond yields in the past few months. A report from Gartner released last week showed that AI revenue infrastructure firms are set to spend upwards of $8.5 trillion through 2030, but that consumer and enterprise AI revenue will total just $3.6 trillion, potentially leaving "more than $4 trillion in asset value exposed to write-down risk through 2032."
Gold Technical Analysis
In the daily chart, XAU/USD trades at $4,124.56, retaining a bearish near-term tone as it holds below the 20-day exponential moving average (EMA) at $4,178.85. Price action remains capped by this overhead dynamic barrier, suggesting rallies are likely to face selling pressure while the Relative Strength Index (RSI) at 41.77 stays in mildly negative territory, hinting at subdued bullish momentum rather than oversold conditions.
On the topside, initial resistance is defined by the 20-day EMA at $4,178.85, and a sustained break above this level would be needed to ease the current downward bias and open the way for a more sustained rebound. Looking down, the psychological level at $4,000 is the key support zone.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
