Gold Prices Forecast: XAU/USD’s Vulnerability Evident Amidst Yield Rise, Fed Outlook

Highlights

• XAU/USD plunges to $1,895.50, its lowest since June.
• SPDR Gold Trust holdings at a record low since January 2020.
• Fed’s July minutes expected to illuminate rate strategy.

Overview

Gold (XAU/USD)’s recent dip below the crucial $1,900 support highlights the metal’s vulnerability amidst rising U.S. Treasury yields and anticipation surrounding the Federal Reserve’s monetary strategy.

Yields and Gold Dynamics

On Tuesday, gold prices plunged to $1,895.50 an ounce, their lowest since late June. This decrease coincided with the 10-year U.S. Treasury yields reaching a nearly 10-month pinnacle. The allure of these yields seems to overshadow non-yielding bullion, especially with the persistent climb in real yields.

Investor Sentiment and Gold

Reflecting waning enthusiasm for gold, the SPDR Gold Trust, the world’s predominant gold-backed ETF, reported holdings at their lowest since January 2020. Astonishingly, there haven’t been inflows since the end of July. The robust U.S. retail sales data suggests resilience in the economy, potentially diminishing the appeal of gold as a safe haven.

Federal Reserve’s Outlook

While Minneapolis Fed President Neel Kashkari acknowledges progress in managing inflation, he hinted that interest rates might rise further. The Federal Reserve’s minutes from their July assembly will be pivotal in offering insights into their future rate direction. The varying narratives since the July meeting spotlight the Fed’s emphasis on data-driven decisions, as conveyed by Chief Jerome Powell.

Short-term Forecast

Given the current dynamics, gold seems bearish in the short term. Aided by the recent U.S. retail sales surge and the Fed’s ambiguity about rate hikes, investors might continue to favor yields over bullion.

Technical Analysis

Gold’s current 4-hour price at $1905.22 slightly surpasses the previous 4-hour price of $1904.03, indicating a marginal upward movement. The price is below both the 200-4H moving average of $1940.43 and the 50-4H moving average of $1921.02, suggesting a bearish trend. The 14-4H RSI stands at 37.50, indicating that the commodity is nearing oversold territory, hinting at potential buying interest soon.

While the current price is just above the main support area spanning from $1902.75 to $1893.07, it remains well below the main resistance area between $1946.99 to $1954.88. Collectively, the market sentiment appears bearish in the short term, but traders may attempt to consolidate inside the $1902.75 to $1893.07 support zone in an effort to relieve some of the downside pressure.