Gold Price Forecast: XAU/USD supported by weaker US yields but overbought conditions warrant caution

  • Gold price turns south, despite weaker USD, Treasury yields.
  • Upbeat market mood amid easing inflation concerns weighs on gold.
  • Overbought conditions could limit gold’s upside ahead of key US data.

Gold price (XAU/USD) kicked off the week on the negative footing, ending Monday marginally lower at $1881. Gold price faced rejection once again at higher levels just shy of the $1890 level, despite the weakness in the US dollar and Treasury yields. The US rates fell and dragged the greenback lower after a school of Fed policymakers poured cold water on rising inflation concerns, by calling the surge as ‘transitory’. The Fed’s conciliatory remarks boosted the Wall Street indices and capped gold’s upside, as markets once again believed the Fed could to maintain lower rates for longer. However, amid a lack of notable US economic news and holiday-thinned trading conditions, gold price stuck to its recent trading range between $1870-$1890 a day before.

So far this Tuesday’s trading, gold price remains under pressure below $1880, as the risk-on market mood overshadows the bearish undertone in the dollar and yields. Investors cheer easing inflation fears and expectations of stronger global economic recovery, reflective of the 0.20% rise in the S&P 500 futures. However, it remains to be seen if the broader market optimism extends ahead of the key US CB Consumer Confidence data release. Looking ahead, if the selling in the US rates intensifies, gold price could rebound towards $1890.

Gold Price Chart - Technical outlook

Gold: Daily chart

Gold’s daily chart shows that the price lacks impetus, at the moment, as it wavers in a narrow range.

Having formed a doji candlestick on Monday and a spinning top last Friday on the said time frame, the bulls seem to face exhaustion after the upsurge from $1766 seen so far this month.

The same is being reflected by overbought conditions on the 14-day Relative Strength Index (RSI), currently at 72.18.

Therefore, a deeper pullback towards the $1850 psychological barrier cannot be ruled should the bulls fail to find acceptance above the critical $1890 static resistance.

However, if the $1890 hurdle is taken out convincingly, recapturing the $1900 mark remains inevitable.

The next horizontal trendline resistance at $1918 could be on the buyers’ radars.


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