Gold Price Forecast: XAU/USD risks a drop below $1750 amid bearish technical setup

Gold remains vulnerable, sell the bounce strategy to remain in play.
Technical setup on 1H chart favors the gold bears, with $1732 in sight.
Focus on US Treasury yields and the House vote on the $1.9 trillion stimulus bill.

Dhwani Mehta FXStreet

Gold (XAU/USD) hit four-day lows at $1765 in early Asia, as the bears look to challenge the multi-month lows near $1760 once again. Despite the ongoing bearish momentum, gold is attempting a minor recovery towards $1780 levels, as the US Treasury yields retreat following a steep rise in Thursday’s American trading.

The US rates rallied across the curve after a poor show was put on the Treasury auction, which triggered a sharp sell-off in the US government bonds. The benchmark 10-year Treasury yields surged 23 basis points to 1.6%, although the yields have slipped back below the 1.5% level, as of writing.

The tremendous surge in the yields fuelled a solid recovery rally in the US dollar from seven-week lows, exacerbating the pain in gold. In the day ahead, should the sell-off in the Treasury yields accelerate, it could drag global stocks lower while reviving the haven demand for the greenback. Such a move could limit the bounce in the metal, paving the way for the next leg lower.

The US House vote on President Joe Biden’s $1.9 trillion stimulus package later on Friday at 1400 GMT will be closely followed for the next direction in gold. In the meantime, the Treasury yields price-action could likely be the key driver for the bright metal.

Gold Price Chart - Technical outlook

Gold: Hourly chart

The technical set up on gold’s hourly chart screams sell, as well reflected by a potential bear flag and a death cross.

The recent sell-off that following a brief consolidation in Asia charted out a bear flag formation on the said timeframe, with the pattern likely to get validated on an hourly closing below the rising trendline support at $1768.

The pattern confirmation could expose the end-July lows of $1757, below which the measured target at $1732 could be tested,

The Relative Strength Index (RSI) inches lower below the midline, allowing for declines. Meanwhile, the 50-hourly moving average (HMA) has crossed the 200-HMA from above, representing a death cross formation, backing the case for the further downside.

Alternatively, a sustained move above the rising trendline resistance at $1777 could add credence to the recovery momentum. Although the bearish 21-HMA at $1780 is likely to be a tough nut to crack for the XAU buyers.

Author

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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