Gold Price Forecast: XAU/USD rebounds from daily lows as US Treasury yields retreat

Update: Gold prices attempt to rebound from the daily lows and inches closer to $1,795 on Monday. The drop in the US benchmark US Treasury yields supported the current upside movement in the prices. Weaker equity market, concerns of the rapid spread of the coronavirus delta variant and its impact on the global economic recovery continue to lend support near the lower levels. Gold takes cues from the major central bank’s views on tapering and economic stimulus. Fed’s official hawkish comments signalling a tapering action before the end of this year exerts pressure on the higher side. This, in turn, helped the greenback gained traction. The strength of the US dollar keeps the precious metal gains under check. A higher USD valuation makes gold expansive for other currencies holders.

Gold prices are struggling below $1,800 following the previous week’s downside momentum. The prices find it difficult to hold the psychological $1,800 level amid US Fed’s tapering timeline expectations and a firmer US dollar.

 The US Dollar Index, which tracks the performance of the greenback against the basket of six major currencies, remains strong above 92.50, while US benchmark US 10-year Treasury yields rebound after a measure of US inflation came higher than expected. The US Labor Department released its Producer Price Index (PPI), which came higher at 0.7% in August following July’s rise of 0.1%, and above the market expectations of 0.6%. 

Precious metal is considered a hedge against inflation generally, however, higher US Treasury yields translate into higher opportunity costs for holding non-interest bearing gold. Gold prices were unable to find traction after higher inflation readings as traders assessed that the readings could force the Fed to tighten its monetary policy sooner than expected.

Hawkish Fed members continue to built pressure on gold prices. Philadelphia Fed President and CEO Patric Harker said FOMC should start tapering soon this year, joining the other members. Cleveland Federal Reserve President Loretta Mester also said that she would support the central bank’s plan to reduce asset purchases this year.

The comments are the progression of the previous week’s Fed members hawkish views on tapering measures. Atlanta’s Fed President Raphael Bostic said that the economy is relatively in a strong position and it would be appropriate to reduce the bond purchase program this year.

In the previous week, the European Central Bank (ECB) kept its interest rate at historic low levels of 0.00% but said it would slow the pace of its pandemic bond purchases for the rest of the year.

Technical levels

Gold prices have extended the upside rally from the low made on August 9 at $1,687.78 and touched the high of $1,834.02 recently on September  6, in the previous week. However, prices are not able to preserve the upside momentum and retreat below the 23.6% Fibonacci retracement level at $1,800.

XAU/USD daily chart

The Moving Average Convergence Divergence (MACD) hold above the midline but with a bearish crossover.  Any downtick in the MACD indicator would confirm the downside momentum with an immediate downside target placed at the 38.2% Fibonacci retracement level at $1,777.11.

Alternatively, the formation of a Doji candlestick suggests indecisiveness among traders. If prices reverse direction then the first upside target would appear at the previous session’s high at $1,803.94 followed by the $1,810 horizontal resistance zone.

XAU/USD additional levels