Gold Price Forecast: XAUUSD conquers $1,750 as US Q2 GDP shrinks, flashing a recession

• Gold price advances more than 1%, recording back-to-back gains for the first time since July 21-22.
• The US Q2 GDP, on its preliminary reading, contracted, meaning the US is in a technical recession.
• The US economic calendar on Friday will update the Fed’s favorite inflation gauge, alongside the UoM Consumer Sentiment.

Gold Price breaks above the top of the $1,700-$1,720 range and rallies towards the $1,750 area, where the non-yielding metal will face solid resistance, led by the July 8 daily high at $1,752.46. At the time of writing, the XAUUSD is trading at $1,753.62.

Gold price rises on mixed sentiment and falling US bond yields

Gold price is rising, and global equities are mixed – though US stocks are trimming some of Wednesday’s gains – courtesy of the Federal Reserve’s slightly “dovish” tilt. Although the US Fed Chair Jerome Powell acknowledged that production and spending were slowing down, he reiterated that the Fed would continue hiking rates, opening the door for another “exceptionally” increase. After that, the US central bank would become data-dependent and could slow the pace of tightening.

Gold price's reaction to the Fed announcement was to climb from $1,718.60 to $1,738.28 and then finish trading around $1,733.10. On Thursday, the XAUUSD is now up 1% or $20 higher.

In the meantime, the US Advance GDP for Q2 showed signs that the economy is further deteriorating. The US Department of Commerce revealed that GDP shrank at a 0.9% YoY pace after declining 1.6% in the first quarter, meaning that the US is in a technical recession. The report shows a decrease in private inventory investment, residential fixed investment, and federal government spending. The positive is that, albeit contracting, it jumped from Q1 -1.6% YoY print, helped by increases in exports and personal consumption expenditures (PCE).

At the same time, the US Department of Labor reported that Initial Jobless Claims for the week ending on July 23 rose by 256K, higher than forecasts but lower than the previous week’s 261K.

That said, gold regained some bullishness as a stagflation scenario in the US economy looms. However, XAUUSD traders should be aware of US Treasury yields and the US dollar reaction to forwarding data. At the time of writing, the US Dollar Index is rising 0.12%, at 106.598, while the US 10-year Treasury yield collapsed almost ten bps, at 2.685%, a tailwind for the yellow metal.

What to watch

On Friday, the US economic docket will feature the Fed’s favorite inflation gauge, the Personal Consumption Expenditures (PCE), on its headline and core readings. Also, investors need to be aware of the Employment Cost Index, which will shed some clues regarding the stickiness of inflation. Later in the day, the University of Michigan (UoM) Consumer Sentiment for July on its final reading will be revealed.

Gold (XAUUSD) Key Technical Levels