Gold Price Forecast: XAU/USD surrenders intraday gains, seems poised to slide further

• A modest pullback in the US bond yields assisted gold to gain positive traction on Wednesday.
• A strong follow-through USD rally and the risk-on impulse kept a lid on any meaningful upside.
• The fundamental backdrop favours bearish traders and supports prospects for a further decline.
• Gold Price Forecast: XAU/USD set to test $1700? Daily close below 61.8% Fib level flags caution

Gold surrendered a major part of its intraday gains and retreated to the lower end of its daily trading range during the early North American session. Following a rapid rise since the end of last week, the US Treasury bond yields witnessed a modest pullback on Wednesday. In fact, the yield on the benchmark 10-year US government bond dropped back closer to the 1.50% threshold. This, in turn, was seen as a key factor that extended some support to the non-yielding yellow metal. That said, an extension of a strong US dollar rally acted as a headwind for dollar-denominated commodities, including gold.

The intensifying energy crisis in China resurfaced fears of a slowdown in the world's second-largest economy and benefitted the greenback's status as the global reserve currency. This, along with prospects for an early policy tightening by the Fed, pushed the key USD Index to the highest level since November 2020. It is worth mentioning that the Fed hinted last week that it could start rolling back its massive pandemic-era stimulus as soon as November and end the program by mid-2022. Adding to this, the so-called dot plot indicated that policymakers were inclined to hike interest rates in 2022.

This, to a larger extent, helped offset the looming US debt ceiling and remained supportive of the strong bid tone surrounding the greenback. Apart from this, the risk-on impulse – as depicted by a solid rebound in the equity markets – further collaborated to cap gains for the safe-haven gold. The fundamental backdrop seems tilted firmly in favour of bearish traders. Hence, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Market participants now look forward to comments by major central bank chiefs, including the Fed Chair Jerome Powell, at the ECB Forum on Central Banking in Sintra for a fresh impetus.

Technical outlook

From a technical perspective, the overnight swing lows, around the $1,728 region could lend some support to gold, which if broken will set the stage for additional losses. The XAG/USD might then accelerate the slide further towards the $1,700 mark before eventually dropping to challenge YTD lows, around the $1,687-86 area.

On the flip side, immediate resistance is pegged near the $1,750-52 zone, above which a bout of short-covering has the potential to lift gold towards the next relevant hurdle near the $1,775 region. This is followed by resistance near the $1,783-84 area. A sustained strength beyond the latter should allow bulls to reclaim the $1,800 round figure.

Levels to watch