Gold Price Forecast: XAU/USD slides back closer to $1,750 amid rising bond yields, stronger USD

Update: Gold struggled to capitalize on the previous day's modest bounce, instead met with some fresh supply on Wednesday and dropped back closer to the $1,750 level heading into the European session. This marked the second successive day of a negative move and was sponsored by the continuous surge in the US Treasury bond yields, which tends to drive flows away from the non-yielding yellow metal.

The US bond yields resumed their uptrend that has been underway since late September when the Fed signalled that it would begin tapering its monthly bond purchases by the end of 2021. In fact, the yield on the benchmark 10-year US government bond shot to 1.573% or the highest level in over three months during the early part of the trading action on Wednesday. This, along with rising bets for a Fed interest rate hike in 2022, underpinned the US dollar and exerted additional pressure on the dollar-denominated gold.

Meanwhile, worries that the continued surge in crude oil/energy prices will stoke inflation and derail the global economic recovery tempered investors' appetite for perceived riskier assets. This was evident from a generally weaker tone around the equity markets, which could act as a tailwind for the traditional safe-haven gold. This, in turn, warrants some caution for bearish traders and before positioning for any further depreciating move. Investors might also be reluctant to place any aggressive bets ahead of the closely-watched US monthly jobs report – popularly known as NFP – scheduled for release on Friday.

Previous update: Gold (XAU/USD) takes offers around $1,755, down 0.30% on a day, ahead of Wednesday’s European session. In doing so, the precious metal drops for the second consecutive day as risk-off mood favors the US dollar.

US Dollar Index (DXY), a gauge of the greenback versus major currencies, also keeps the previous day’s rebound near 94.05, up 0.06% on a day by the press time. In doing so, the DXY takes clues from the firmer US 10-year Treasury yields, up 1.6 basis points (bps) near 1.547% at the latest.

It’s worth noting that the market sentiment remains cautiously optimistic, mildly weak of late, amid anxiety over the US stimulus and the debt limit extension, not to forget cautious mood before Friday’s US Nonfarm Payrolls (NFP).

US President Biden stays determine the tackle the key budget and relief package issues before the October 18 deadline despite the GOP rejection. The Democratic Party member recently said, per Reuters, “A carve-out of the filibuster for the debt limit is a real possibility.”

On the positive side, Moody’s intact US credit rating and Biden’s readiness to ease infrastructures spending bill’s cap keeps the market players hopeful. However, Republicans are firm on their demands and challenge the optimism.

Elsewhere, the news of the US Trade Representative’s (USTR) investigation over the exclusion of China imports joins US President Biden’s phone call with his Chinese counterpart and readiness to respect the Taiwan agreement to challenge the pessimists.

It’s worth mentioning that the Fed tapering chatters gained momentum after firmer US PMIs as well as hawkish comments from the US Federal Reserve (Fed) policymakers, which in turn support the US Treasury yields while weighing on the stock futures. Though, the record trade deficit in the US and recent challenge from the covid Delta variant, not to forget financial risks emanating from China, poke the hawks.

Amid these plays, market players will pay close attention to the risk catalysts and the US ADP Employment Change for September for fresh impulse ahead of Friday’s US Nonfarm Payrolls (NFP).

Read: US ADP Employment Change September Preview: Yes, its all about the Fed

Technical analysis

Gold remains depressed between 200-EMA and 50-EMA, flirting with a one-month-old descending trend line of late.

Given the MACD line’s bearish cross and a descending RSI line, the bullion prices are likely to witness further downside pressure.

However, a clear break of 50-EMA and three-week-old horizontal support, around $1,755, becomes necessary for the gold sellers to tighten the grips. Following that, September’s bottom surrounding $1,721 will be in focus.

Alternatively, an upside run-up past $1,774, comprising 200-EMA, will aim for $1,787 before directing gold buyers toward the $1,800 threshold.

It’s worth noting that the mid-September swing high and the last monthly peak, near $1,808 and $1,834 act as tough barriers for the precious metal to cross past $1,800 if the bulls need to reclaim the fort.

Gold: Four-hour chart

Trend: Further weakness expected