Gold Prices Forecast: XAU/USD Holds Ground Despite Treasury Yield Surge

Highlights

• Gold (XAU/USD) prices rally on Tuesday, largely propelled by a weaker U.S. dollar.
• U.S. Treasury yields soar, hitting their peak since November 2007.
• Central bankers’ upcoming meeting is anticipated to shed light on interest rate directions.

Gold Prices Hold Firm as U.S. Dollar Weakens

Gold (XAU/USD) prices experienced a modest rebound on Tuesday, buoyed by a receding U.S. dollar despite U.S. Treasury yields soaring to their highest since November 2007. The backdrop for this gold resurgence is the broader financial market’s anticipation of insights from the upcoming central bankers’ meeting on the interest rate trajectory. Historically, a weakening dollar paves the way for a surge in dollar-denominated gold, making it more appealing to overseas investors.

The Rise of Treasury Yields and Implications for Gold

Benchmark 10-year U.S. Treasury yields made a significant leap, signaling the market’s strengthening belief that U.S. interest rates will be maintained at elevated levels for an extended period. Concurrently, the outlook for the Federal Reserve seems to be leaning towards another modest rate hike by November, followed by potential rate reductions in 2023. Elevated interest rates often drive bond yields up and bolster the dollar, detracting from the allure of non-yielding assets like gold.

The U.S. Dollar’s Retreat and Gold’s Glimmer

Despite the U.S. Treasury yields’ upward trajectory, the U.S. dollar retreated from a recent 10-week zenith against other major currencies. This pause in the dollar’s rally, combined with its potential further correction, could be the spark that ignites a robust rally in the gold market. Investors have been keeping a close watch on gold’s decline, speculating on the optimal moment to re-enter the market.

Fed Chair Jerome Powell’s Anticipated Address

All eyes are on Fed Chair Jerome Powell’s upcoming speech at Jackson Hole, Wyoming. His remarks will be crucial in gauging the Federal Reserve’s stance on interest rates. It’s anticipated that Powell might laud the Fed’s efforts in aligning inflation closer to their target, possibly easing some of the pressure off gold stemming from interest rate concerns.

Bearish Outlook for Gold ETFs

Despite the recent positive movements in gold, the allure of gold-backed ETFs has been waning. The world’s most significant gold-backed ETF, SPDR Gold Trust, witnessed further outflows, signifying dwindling investor interest. This shift suggests a more bearish outlook for gold in the immediate future.

Technical Analysis

Currently, the 4-hour price of Gold (XAU/USD) at 1898.30 is marginally above its main support area, ranging from 1893.07 to 1885.79, hinting at the market finding some footing.

Despite this, its position below both the 200-4H moving average of 1937.18 and the 50-4H moving average of 1902.70 suggests a predominant bearish sentiment.

However, given its proximity to the 50-4H moving average, there’s potential for a short-covering rally to push prices through this level. The 14-4H RSI stands slightly above neutral at 52.01, indicating a possibility of upward momentum. The market’s posture remains cautious but with a window for bullish reversal.