Gold Price Forecast: XAU/USD refreshes weekly high amid a sharp fall in bond yields, USD

Gold stages a solid recovery from a two-and-half-year low touched earlier this Wednesday.
A sharp pullback in the US bond yields prompts some USD profit-taking and offers support.
The prospects for more aggressive central banks, the risk-on mood could cap the XAU/USD.

Haresh Menghani FXStreet

Gold rebounds swiftly from its lowest level since April 2020 touched earlier this Wednesday and turns positive for the second successive day. The momentum lifts the XAU/USD to a fresh weekly high, around the $1,652 region during the early North American session.

The UK gilt yields retreat sharply after the Bank of England said it would buy bonds at whatever scale is necessary to restore orderly market conditions. The spillover effect triggers a steep decline in the US Treasury bond yields, which forces the US dollar to surrender its early gains to a new two-decade high. This turns out to be a key factor that prompts aggressive intraday short-covering around the dollar-denominated gold.

The upside potential, however, seems limited amid the prospects for a more aggressive policy tightening by global central banks, including the Federal Reserve. Investors seem convinced that the US central bank will continue to hike interest rates at a faster pace to combat stubbornly high inflation. This could act as a tailwind for the US bond yields and favours the USD bulls, which, in turn, should cap gains for the non-yielding gold.

Apart from this, a positive turnaround in the global risk sentiment - as depicted by a strong recovery in the equity markets - should keep a lid on the safe-haven XAU/USD. Even from a technical perspective, last week's breakdown below a short-term trading range supports prospects for an extension of a multi-month-old downtrend. This makes it prudent to wait for strong follow-through buying before confirming that gold has formed a near-term bottom.

Market participants now look forward to speeches by influential FOMC members, including Chair Jerome Powell. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to gold. Apart from this, traders will take cues from the broader risk sentiment to grab short-term opportunities around the XAU/USD. The fundamental backdrop, however, suggests that the intraday recovery runs the risk of fizzling out quickly.

Technical levels to watch

XAU/USD

Overview
Today last price	1646.19
Today Daily Change	17.13
Today Daily Change %	1.05
Today daily open	1629.06

Trends
Daily SMA20	1686.23
Daily SMA50	1728.21
Daily SMA100	1770.66
Daily SMA200	1826.72

Levels
Previous Daily High	1642.5
Previous Daily Low	1621.76
Previous Weekly High	1688.11
Previous Weekly Low	1639.85
Previous Monthly High	1807.93
Previous Monthly Low	1709.68
Daily Fibonacci 38.2%	1634.58
Daily Fibonacci 61.8%	1629.68
Daily Pivot Point S1	1619.71
Daily Pivot Point S2	1610.37
Daily Pivot Point S3	1598.97
Daily Pivot Point R1	1640.45
Daily Pivot Point R2	1651.85
Daily Pivot Point R3	1661.19

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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