Gold Price Forecast: XAU/USD remains vulnerable amid surging bond yields, USD

Gold staged a modest recovery from its lowest level since April 2020 touched on Tuesday, though it lacked any follow-through buying. An intraday US dollar downtick was a critical factor that offered some support to the dollar-denominated commodity. That said, the prospects for a more aggressive policy tightening by the Federal Reserve assisted the USD in reversing the early dip. This, along with surging US Treasury bond yields, kept a lid on any meaningful upside for the non-yielding yellow metal.

The yield on the benchmark 10-year US government bond hit the 4% threshold for the first time since April 2010 after Fed officials reiterated the resolution to maintain a hawkish stance to tame inflation. 
Minneapolis Fed President Neel Kashkari said on Tuesday that policymakers are determined to do what is needed to bring inflation down. Adding to this, Chicago Fed President Charles Evans said the US central bank would need to raise interest rates between 4.50% and 4.75%.

Apart from this, a renewed surge in UK gilt yields further contributed to the sell-off in the global fixed-income market. Meanwhile, worries that Fed policy will push the economy into recession widened the spread between the two and 30-year yields, to as much as -0.68%, the deepest inversion since 2000. This, along with the risk of a further escalation in the Russia-Ukraine conflict, continues to weigh on investors' sentiment, evident from a generally weaker tone around the equity markets.

The anti-risk flow undermined traditional safe-haven assets and assisted the precious metal to end the day in the green, snapping a three-day losing streak. The relentless USD buying, however, prompts fresh selling around the XAU/USD during the Asian session on Wednesday and supports prospects for a further near-term depreciating move. Market participants now look forward to speeches by influential FOMC members, including Fed Chair Jerome Powell, for some meaningful trading opportunities.

Technical Outlook

From a technical perspective, the XAU/USD, so far, has been struggling to register any meaningful recovery. Furthermore, the recent breakdown below a one-week-old trading range and the emergence of fresh selling at higher levels suggest that the near-term downtrend might still be far from over. Hence, a subsequent fall below the $1,620 area (YTD low), en route to the $1,600-$1,590 region, remains a distinct possibility. Some follow-through selling will be seen as a fresh trigger for bearish traders and drag gold towards the next relevant support near the $1,567-$1,565 zone. The downward trajectory could extend towards the $1,530-$1,528 region, below which the XAU/USD might aim to challenge the $1,500 psychological mark.

On the flip side, the overnight swing high, around the $1,640-$1,642 area, now seems to act as immediate resistance. This is followed by the trading range support breakpoint, around the $1.654-$1,656 region, which if cleared might trigger a short-covering move towards the $1,675-$1.676 supply zone. Some follow-through buying will negate any near-term negative bias and pave the way for additional gains, allowing gold to reclaim the $1.700 round-figure mark.