Gold Price Forecast: XAUUSD benefiting from softer Treasury yields

XAUUSD Current price: $1,679.65

• Federal Reserve’s Loretta Mester firmly aligned with the hawkish rhetoric.
• US Treasury yields eased after Wall Street’s opening, weighing on the US dollar.
• XAUUSD bounces from a critical Fibonacci level, but further gains are unclear.

XAUUSD is up on Tuesday as market players choose to drop the American currency during US trading hours. The US Dollar appreciated throughout the first half of the day, helped by resurgent government bond yields. US Treasury yields soared after the long holiday, with the 10-year note paying as much as 4%. However, easing yields after Wall Street’s opening bell undermined demand for the safe-haven USD.

Fed Mester repeats her hawkish message

US indexes are trading mixed, as the Dow Jones Industrial Average is firmly up, but the S&P 500 remains below the waterline, while the Nasdaq Composite is up measly 15 points. The risk-averse mood that led the way on Monday persisted, with high-yielding assets benefiting from the absence of fresh news rather than surging on encouraging ones.

Meanwhile, US Federal Reserve Cleveland President Loretta Mester reiterated on Tuesday the well-known hawkish message. Among other things, Mester said that the biggest risk is that the Fed does not hike rates enough, adding that she does not expect the central bank to lower rates in 2023. Finally, she added that fighting inflation is painful “but must happen.”

The US will publish an update on inflation data next Thursday. The September Consumer Price Index is expected to have risen at an annualized pace of 8.1% in September, easing from 8.3% in the previous month. However, core inflation, excluding volatile food and energy prices, is foreseen to have increased by 6.5%, higher than the previous 6.3%.

XAUUSD price short-term technical outlook

The XAUUSD pair could recover further, as the daily chart shows that the bright metal is back above a flat 20 SMA. The longer moving averages maintain their firmly bearish slopes well above the current level, while technical indicators pared their declines and picked up modestly within neutral levels.

The same chart shows that the pair has met buyers around the 61.8% Fibonacci retracement of the latest bullish run measured between $1,614.81 and $1,729.54 at $1,658.45. The 38.2% retracement provides immediate resistance at $1,685.55. A break through any of such levels should see XAUUSD gaining directional strength.

In the near term, and according to the 4-hour chart, chances of a bullish extension seem limited. Technical indicators aim higher but remain below their midlines, correcting oversold conditions. The pair recovered above a flat 100 SMA but remains below a firmly bearish 20 SMA, which has just crossed below the 200 SMA, both above the aforementioned Fibonacci resistance level.

Support levels: 1,672.10 1,658.45 1,645.20

Resistance levels: 1,685.55 1,694.30 1,702.40

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