Gold price jumps to over one-week high, above $1,735 amid a sharp fall in US bond yields

  • Gold price scales higher for the second straight day and shoots to over a one-week high on Friday.
  • Recession fears, along with sliding US bond yields, offer some support to the safe-haven metal.
  • The global monetary policy tightening trend could act as a headwind for the non-yielding XAUUSD.

Gold price gains some follow-through traction for the second successive day on Friday and builds on the overnight goodish recovery from the $1,680 region, or its lowest level since March 2021. The momentum pushes the XAUUSD to over a one-week high, around the $1,737 region during the North American session. That said, any meaningful upside still seems elusive, warranting some caution for aggressive bullish traders.

Gold price underpinned by recession fears

Persistent worries about a possible global recession turns out to be a key factor offering some support to the safe-haven gold. The concerns resurfaced on Friday following the disappointing release of the Eurozone PMI prints. In fact, the preliminary manufacturing activity report from S&P Global/BME research showed that the downturn in the German and French business activity gathered pace in July.

Growth concerns

Declining US bond yields offer additional support

A further decline in the US Treasury bond yields reflects mounting worries about the worsening economic outlook. Thursday's US macro data - Weekly Jobless Claims and the Philly Fed Manufacturing Index - also points to signs of a deteriorating trend in the economy. This, in turn, is dragging the yield on the benchmark 10-year US government bond to its lowest level in over two weeks, which is seen as another factor offering some support to the gold price.

Also read - Gold Price Forecast: Will XAUUSD sustain the recovery above $1,700?

Aggressive major central banks to cap gains

That said, the prospects for a more aggressive move by major central banks to curb soaring inflation might hold back traders from placing aggressive bullish bets around the non-yielding gold. The European Central Bank followed the global tightening trend and raised its official rates for the first time since 2011 on Thursday. The central bank delivered a jumbo 50 bps rate increase and indicated further tightening in future meetings.

Adding to this, the Bank of England Governor Andrew Bailey's hawkish remarks on Wednesday bolstered bets for a 50 bps rate hike in August, which would be the biggest since 1995. The Federal Reserve is also expected to raise rates by another 75 bps at its upcoming policy meeting on July 26-27. Moreover, the Reserve Bank of Australia has signalled earlier this week the need for higher interest rates to tame rising inflation.

Gold price technical outlook

Gold price has now found acceptance above the $1,710-$1,712 immediate resistance and seems poised to climb further. That said, any subsequent move up could attract some sellers near the $1,745-$1,746 supply zone. This, in turn, should cap gains for the XAUUSD near the $1,752 region, which should act as a pivotal point and help determine the next leg of a directional move.

On the flip side, the $1,712-$1,710 resistance breakpoint now seems to protect the immediate downside ahead of the $1,707 area and the $1,700 round-figure mark. A convincing break below the latter would suggest that the attempted recovery has run out of steam and trigger a fresh bout of selling. The gold price could then drop back to the YTD low, around the $1,680 region touched on Thursday before eventually dropping to the next relevant support near the $1,670 horizontal zone.


Gold price: What does the race to raise rates mean for precious metal prices?


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