Gold Price Forecast: XAU Dips to Five-Week Low Amid Soaring Bond Yields, Dollar

Highlights

• Gold hits five-week low; dollar strengthens.
• Bond yields rise, challenging gold’s appeal.
• SPDR Gold Trust holdings at January 2020 low.

Overview

Gold (XAU), a time-honored safe haven, hit a five-week low on Monday, overshadowed by a resurgent U.S. dollar and an uptick in bond yields. Early in the session, spot gold registered a slight drop of 0.1%, priced at $1,912.13 per ounce. Meanwhile, futures for the yellow metal also mirrored this decline, registering at $1,944.10. This dip is largely attributed to Friday’s data which highlighted a more-than-anticipated rise in July’s producer prices, pushing the dollar to heights unseen since July 7.

Dollar’s Rise Challenges Gold Prices

Notably, the correlation between gold and the U.S. dollar continues to be significant. As bond yields and commercial rates gear up for a climb, the dollar finds itself on an upward trajectory. This poses a challenge for gold. Higher Treasury bond yields and surging interest rates increase the opportunity cost of holding non-yielding gold, which traditionally finds its value pegged to the dollar.

Gold Traders Eye Key Releases

This week holds weight for gold (XAU) traders, with significant data releases lined up. While China preps to unveil its retail sales and industrial output numbers on Tuesday, eyes are also set on the U.S. retail figures, slated for release the same day. However, the main event remains the U.S. Federal Reserve’s July meeting minutes, expected on Wednesday. Experts are prepping for a hawkish tone, which may exert further downward pressure on gold. Forecasts are grim, hinting at potential price points of $1,900 or even a steeper plunge to $1,875.

Short-Term Sentiment:  Bearish

Concluding on an investor’s note, the SPDR Gold Trust, a benchmark gold-backed ETF, reported its holdings plummeting to a nadir last seen in January 2020. Additionally, the previous week saw COMEX gold speculators trim their net long position, a move indicative of the current bearish sentiment encircling the precious metal.

Technical Analysis

Gold’s current 4-hour price of $1913.60 is slightly above the prior 4-hour close of $1912.45, indicating minor upward momentum. Technically, the price is now trading below both the 200-4H moving average of $1940.56 and the 50-4H moving average of $1928.83. This bearish positioning relative to the moving averages is reinforced by the 14-4H RSI reading of 39.52, suggesting weakened momentum.

Furthermore, the price is hovering just inside the main support zone of $1914.00 to $1902.75. Given these parameters, the current short-term sentiment for Gold seems bearish as it trades close to significant support levels and beneath key moving averages.