Gold Price Forecast: XAU/USD remains at the mercy of US bond yields/USD price dynamics


  • A combination of factors assisted gold to stage a modest recovery from multi-month lows on Tuesday.
  • Retreating US bond yields undermined the USD and provided a goodish lift to the non-yielding metal.
  • The optimistic global economic outlook capped any further gains for the commodity, at least for now.

Gold staged a goodish rebound from eight-month lows touched earlier on Tuesday and finally settled with modest gains for the first time in six sessions. Given that the recent violent selloff in the US bond market has eased, slightly oversold conditions on short-term charts turned out to be one of the key factors that prompted some short-covering around the non-yielding yellow metal.

The US Treasury bond yields have been a key focal point in recent weeks amid the prospects for a faster US economic recovery from the pandemic. The upbeat US economic outlook was supported by the impressive pace of COVID-19 vaccinations and the progress on the US President Joe Biden's proposed $1.9 trillion relief package. The reflation trade forced investors to price in a possible uptick in inflation and raised doubts that the Fed would retain ultra-low interest rates for a longer period.

Meanwhile, retreating US bond yields led to a sharp US dollar pullback from a nearly one-month high, which provided an additional boost to the dollar-denominated commodity. Apart from this, a softer tone surrounding the US equity markets further benefitted the safe-haven XAU/USD and contributed to the overnight positive move. The attempted recovery, however, lacked any follow-through amid optimism that a massive US fiscal spending plan will energise the global economic recovery.

Investors also seemed reluctant to place any aggressive directional bets, rather preferred to wait on the sidelines ahead of the upcoming key event/data risk. The Fed Chair Jerome Powell is scheduled to speak about the US economy at an online event hosted by the Wall Street Journal on Thursday. This, along with the release of the closely watched US monthly jobs report (NFP) on Friday, would assist investors to determine the next leg of a directional move for the commodity.

In the meantime, Wednesday's US economic docket – featuring the releases of the ADP report on private-sector employment and ISM Services PMI – will be looked upon for some impetus later during the early North American session. Traders might further take cues from the broader market risk sentiment; the US bond yields and the US price dynamics in order to grab some meaningful opportunities.

Short-term technical outlook

From a technical perspective, nothing seems to have changed much for the metal and the near-term bias still seems tilted in favour of bearish traders. The overnight move up might still be categorized as a corrective bounce from oversold conditions, which runs the risk of fizzling out rather quickly. Hence, any further recovery might be seen as a selling opportunity and remain capped near the $1960-65 region. That said, a sustained strength beyond will negate the bearish outlook and trigger a fresh wave of the short-covering move. The commodity might then aim back to reclaim the $1800 mark before eventually darting towards the 200-day EMA strong barrier near the $1815-16 supply zone.

On the flip side, the $1725-23 region now seems to protect the immediate downside and is followed by support near the overnight swing lows, around the $1707 area. Failure to defend the mentioned support levels might turn the commodity vulnerable to break below the $1700 mark and accelerate the downfall towards the $1675-70 congestion zone. This should act as a strong base, which if broken decisively should pave the way for an extension of a near seven-month-old downtrend.

fxsoriginal

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD: Demand for high-yielding assets likely to continue

The EUR/USD pair reached1.2171 last Friday, its highest since March 1, closing the week a few pips below such a high. Wall Street reached all-time highs, while US government bond yields plunged. EUR/USD is overbought but still has room to extend its advance.

EUR/USD News

GBP/USD: Scottish election’s result may take its toll on pound

 The British Pound took advantage of the broad dollar’s weakness, and GBP/USD  surged to 1.4005, retreating just modestly ahead of the close to settle around 1.3990. GBP/USD is technically bullish, could advance once above 1.4015 resistance.

GBP/USD News

Gold could target 200-day SMA

Gold extended its rally after surging above $1,800 on Thursday. During the first half of the week, the XAU/USD pair struggled to rise above $1,800 and fluctuated in a horizontal channel. The next target on the upside aligns at $1,850.

Gold News

Judge reaffirms order SEC must produce documents on Bitcoin, Ether and XRP in Ripple case

Ripple's victory granted the firm access to the SEC's documents on the three leading cryptocurrencies. The regulatory agency recently denied the possession of these documents.

More Dogecoin News

S&P 500 and Nasdaq: Can the Fed pump anymore after weak jobs report

Well, that was an interesting jobs report. Not too many people were forecasting that one. Just in case you missed it NFP were forecast to come in around the 1 million jobs gained but instead the US only added 266k.

Read more

Majors

Cryptocurrencies

Signatures