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Gold Price Forecast: XAU/USD Boosted by USD Weakness & Cratering Bond Yields

Gold Price Forecast: XAU/USD Boosted by USD Weakness & Cratering Bond Yields

Diego Colman, Strategist

GOLD PRICES OUTLOOK

  • Gold prices surge and reach their best levels in almost a week supported by a weaker U.S. dollar and cratering bond yields
  • Precious metals maintain a negative outlook despite Wednesday’s rally in the space
  • This article looks at key technical levels to keep an eye on in XAU/USD

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Most Read: Gold Price Forecast - Oversold XAU/USD Unlikely to Halt Sell Off

Gold prices soared on Wednesday, bolstered by a deep retrenchment in global bond yields and a weaker U.S. dollar. In the afternoon trade, XAU/USD was up about 2% to $1,670, its best level since last Thursday. During the day, the U.S. dollar (DXY) dipped more than 1% as the U.S. Treasury curve shifted sharply lower, with the 10-year note sinking more than 20 basis points to 3.80% from its multi-year high of 4.01% set in the overnight session. Meanwhile, the plunge in UK rates was more brutal. For example, the yield on gilts maturing in 30 years plummeted more than 130 basis points to 3.92%, the largest one-day drop since 1992.

Volatility in the fixed income space was undoubtedly triggered by the Bank of England's unexpected "quantitative easing" decision. For context, BoE announced a dramatic intervention in the bond market to stave off a crash, pledging unlimited purchases of long-term debt, despite ongoing efforts to tighten monetary policy in the fight to tame sky-high price pressures. The slump in yields quickly spread to other parts of the world, with traders speculating that major central banks will soon have to back off their hawkish strategy to avoid the kind of chaos that is unfolding in the UK.

UK AND US NOMINAL BOND YIELDS

Source: TradingView

Gold Forecast
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Focusing on the US, it is very difficult to envision the Fed changing course like its peer on the other side of the Atlantic, especially after its recent guidance has reinforced the message that borrowing costs will have to continue to rise and remain high for some time to bring inflation down and force it back to the 2% target. This means that nominal US bond rates will soon resume their ascent, paving the way for real yields to remain elevated and continue to weigh on precious metals, as has been the case over the past few months. In this environment, the U.S. dollar is also likely to command strength, preventing gold prices from staging a durable recovery, at least in the near term. Against this backdrop, traders could soon begin to fade the rally in XAU/USD.

GOLD PRICES TECHNICAL ANALYSIS

After bouncing off technical support at $1,610/$1,620, XAU/USD is quickly approaching a key resistance in the $1,670/$1,680 area. If buyers manage to push prices above this barrier, we could see a move towards $1,700. On further strength, the focus shifts to $1,720. On the flip side, if sellers resurface and spark a bearish reversal from current levels, we could soon see a retest of the 2022 lows.

Gold Mixed
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 1% 4% 2%
Weekly 9% -15% 2%
What does it mean for price action?
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GOLD PRICES TECHNICAL ANALYSIS

Gold Prices Chart Prepared Using TradingView

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---Written by Diego Colman, Market Strategist for DailyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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