Gold Price Forecast: XAU/USD bounces off daily lows as US bond yields take a breather

  • Gold prices fall on broad US Dollar strength across the board.
  • Fed’s bond-taper prospects exert downward pressure in XAU/USD.
  • Surging US bond yields weigh on the non-yielding metal.
  • US spending bills and debt ceiling discussions keeps investors unease.

XAU/USD is slumping 0.75%, trading at $1,736 at the time of writing. The market sentiment is in risk-off mode as the Federal Reserve prepares to unwind its pandemic stimulus, triggering a rise in US bond yields, with the 10-year benchmark rate up three basis points (bps) sitting at 1.515%. Additionally, discussions regarding the increase of the debt ceiling and the spending bill in the US keep the market worried about the outcome.

Additionally, European stock indices printed losses between 0.51% and 2.59%, while across the pond,  the four major indices are sliding between 1.47% and 2.50.

Higher US bond yield underpins the US Dollar Index (DXY)

The US Dollar Index, which tracks the greenback’s performance against a basket of six peers, climbs 0.32%, at 93.72.

In the meantime, Federal Reserve Chairman Jerome Powell is testifying before the US Senate. He told them that the central bank has “all but” met the bar to begin reducing the bond-pandemic stimulus, reinforcing that after ending the bond tapering process, it will not start immediately hiking rates yet.

In the same meeting, Treasury Secretary Janet Yellen warned that the Treasury would effectively run out of money around October 18 unless the US House and the Senate suspend or increase the federal debt limit.

That said, as investors keep unease about these factors, US bond yields could rise in safe-haven flows, dampening the prospects of higher gold prices.

XAU/USD Price Forecast: Technical outlook

Daily chart

XAU/USD is trading below its daily moving averages, supporting the bearish bias. After reaching a daily low at $1,728.17, it bounced off to settle at current levels. A daily close below the September 27 low at $1,744.88 could pave the way for further losses. The first support level would be the August 11 low at $1,724.28. A decisive break of that level would expose the August 10 low at $1,717.87, followed by the August 9 dip to $1,687.78.

On the flip side, if gold bulls would like to reclaim higher prices, they would need a daily close above $1,750.10 in their attempt to lift XAU/USD near the 50-day moving average (DMA) at $1,787.82.

The Relative Strength Index is at 35.70, heading south, supporting the bearish bias.

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