Gold Prices Forecast: Rising Treasury Yields, US Dollar Pressuring XAU/USD

Highlights

• Gold prices slide as U.S. Treasury yields rise.
• Long speculators booking profits as humanitarian efforts delay potential ground invasions from Israel. 
• Overall market sentiment for gold remains bullish.

Safe-Haven Flows Retreat as U.S. Yields Surge

Gold (XAU/USD) prices slid on Monday, pulling back from a five-month high, as U.S. Treasury yields climbed and the dollar strengthened. The retreat comes amid a backdrop of geopolitical concerns in the Middle East, and ahead of key economic indicators set to release this week.

Investor sentiment recently boosted gold, with prices surging 9% in the past two weeks as tensions between Israel and Hamas intensified. However, the yield on benchmark U.S. Treasuries has been relentlessly increasing, keeping gold prices well below the May 4 peak of over $2,000 per ounce. A consensus of analysts suggests that focus on humanitarian efforts might delay potential ground invasions from Israel, which could result in near-term unwinding of long positions or profit-taking in gold prices.

Inflation and Economic Indicators in Focus

Beyond geopolitics, market watchers are eyeing the U.S. PCE price index, Q3 GDP figures, the European Central Bank’s rate decision, and global flash PMIs. The SPDR Gold Trust, the world’s largest gold-backed ETF, increased its holdings by 1.8% on Friday, reflecting sustained investor interest.

Trader Dynamics and Sentiment

According to recent COMEX data, non-commercial traders have turned significantly bullish, while commercial traders hold a more bearish stance. The open interest shows new money flowing into the market, which could signal strong trends ahead. Despite commercial traders’ bearish positions, the overall sentiment leans bullish due to the actions of non-commercial, or ‘smart money,’ traders.

Short-term Outlook

Considering the geopolitical tensions, rising yields, and trader positions, the short-term outlook for gold appears cautiously bullish. Any escalation in Middle East conflicts could quickly reignite safe-haven buying, whereas upcoming economic data may offer cues for future price movements.

Technical Analysis

The current Daily price of gold (XAU/USD) at $1975.75 is notably above both the 200-day and 50-day moving averages, which stand at $1931.20 and $1905.60 respectively. This suggests a bullish sentiment in the short to medium term.

Despite the minor dip from the previous close, the price remains strong, bolstered by staying above minor and main resistance levels of $1930.64 and $1952.21.

The current positioning above key moving averages and resistance levels implies that the market sentiment remains bullish. The main support is considerably below at $1811.03, offering a safety net for potential downturns.

Short-term position-squaring and profit-taking could drive the market back to moving average support.