Gold Price Forecast: XAU/USD bears eye a test of $1,600

Gold is sliding into fresh lows after being held back by the bears below $1,650 on corrections on Monday. The yellow metal dropped to the lowest in more than two years while the US dollar extends its bull cycle on recession fears and rising interest rates. US bond yields have also moved up and are reaching their highest in more than a decade.

The ICE dollar index has touched 114.53, the highest since 2002 while the yields on the US 10-year note have rallied to their highest since 2008 at around 3.93%. The rise comes following the Federal Reserve's 75 basis point hike in interest rates and the promise of further increases as the central bank looks to quell inflation. This has been a weight for gold since it offers no interest to investors in the search for yield. 

''An added concern for the US Treasury market is that should a round of coordinated FX market intervention to weaken the USD occur, it would probably involve sales of US Treasuries by foreign central banks,'' analysts at ANZ Bank said.

Meanwhile, Wall Street fell deeper into a bear market at the start of this week with the S&P 500 and Dow closing lower as investors fretted that the Federal Reserve's aggressive campaign against inflation. With the Fed signaling last Wednesday that high-interest rates could last through 2023, the S&P 500 has relinquished the last of its gains made in a summer rally. The Dow is now down 20.5% from its record high close on Jan. 4. 

''We see the potential for continued outflows from money managers and ETF holdings to weigh on prices moving forward, which ultimately raises the probability of a pending capitulation from the small number of family offices and proprietary trading shops that hold complacent length in gold,'' analysts at TD Securities said.

''In this context, while prices are certainly weak, precious metals' price action could still have further to fall as the restrictive rates regime is set to last for longer. Given that the momentum in underlying inflation trends is persistently inconsistent with the Fed's target, we have changed our terminal rate forecast from 4.25-4.50% to 4.75-5.00%, with not only a 75bp hike in November and 50bp in December but also 25bp rate increases in February and March.''

Gold technical analysis

As per the start of the week's pre-open analysis, Gold, Chart of the Week: XAU/USD thrown to the bears at the edge of the abyss, the price has continued to bleed out having broken key structures. $1,600 is calling with a focus on $1,575.