Gold Price Forecast: XAU/USD refreshes yearly low near $1,660 as strong yields propel US dollar

Gold price (XAU/USD) stands on slippery ground as it renews the 29-month low around $1659 during the initial hour of Friday’s European session.

That said, the precious metal witnessed a pullback from the yearly low earlier in the day amid the market’s inaction. However, the latest recovery in the US Treasury bond yields seemed to have underpinned the US Dollar Index (DXY) and weighed on the XAU/USD prices.

The US 10-year Treasury yields not only reverse the early Asian session decline but also add 2.5 basis points to refresh the three-month high of around 3.48%. With this, the negative divergence with the two-year bond yields keeps signaling recession fears and weighing on the gold price. That said, the two-year US Treasury bond yields rise to the fresh high since late 2007, to 3.916% by the press time.

Also contributing to the bullion’s weakness are the recent hawkish bets on the US Federal Reserve’s (Fed) next move. The latest readings of the hawkish Fed bets from the CME’s FedWatch Tool suggest the market priced in the Fed’s 0.75% and 1.0% rate hikes during the next week’s Fed meeting with 76% and 24% chances versus 75% and 25% in that order.

Furthermore, downbeat economic forecasts and fears over the transition also weigh on gold prices. World Bank Chief Economist Indermit Gill on Thursday said he was concerned about "generalized stagflation," a period of low growth and high inflation, in the global economy, noting the bank had pared back forecasts for three-fourths of all countries, reported Reuters.

Amid these plays, S&P 500 Futures drop 0.85% to attack a weekly low while equities in the UK and Europe open in the red.

Moving on, preliminary readings of the Michigan Consumer Sentiment Index (CSI), expected 60 versus 58.2 prior. However, major attention will be given to the next week’s Federal Open Market Committee (FOMC) monetary policy meeting.

Technical analysis

Gold price extends downside break of a two-month-old support line, now resistance around $1,693, while refreshing the multi-month low. In doing so, the yellow metal ignores oversold RSI (14) while respecting the bearish MACD signals.

That said, a downward sloping trend line from August 22, close to $1,635 by the press time, is likely to offer immediate support to the XAU/USD.

Following that, the $1,600 threshold and April 2020 low near $1,572 will gain the market’s attention.

Alternatively, a corrective bounce may initially aim for the earlier yearly low, marked in July at around $1,680, before heading towards the previous support line, near $1,693 and the $1,700 threshold.

Gold: Four-hour chart

Trend: Further weakness expected