Gold Price Forecast: XAU/USD retreats below $1,780 even as US yield curve flattens

Update: Gold (XAU/USD) trims intraday gains, taking a U-turn from the day’s high near $1,777 to recently around $1,773.50, up 0.53% on a day, heading into Monday’s European session. Even so, the gold buyers cheer downbeat US Treasury yields to keep the corrective pullback from late-April lows.

While increasing odds of the US Federal Reserve’s (Fed) monetary policy adjustments seem to weigh on the US Treasury yields, the recent consolidation in the gold prices could be traced to the US dollar’s strength ahead of the key European session.

It’s worth noting that today’s speech from New York Fed President John C. Williams will be the key for gold traders after St. Louis Fed President reiterated his bullish bias.

Read: US Treasury yields drop to early 2021 levels during three-day downtrend

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Update: Gold price has turned positive for the first time in one week, having found some support just above $1760. The ongoing decline in the US Treasury yield across the curve is saving the day for the gold bulls. Falling inflation expectations and uncertainty over the US infrastructure spending plans is weighing heavily on the returns on the markets, as investors re-think the Fed’s hawkish stance. Last week, gold dropped 6% after Fed signaled sooner-than-expected rate hikes, which killed the demand for the yieldless gold. Gold price hit the lowest in two months last Friday at $1760. At the time of writing, gold is trading at $1774, up 0.55% on the day.

Read: Chart of the Week: Gold bulls stepping in at critical support

A stronger USD following the Federal Reserve hawkish tone kept the commodities complex down and weighed n precious metals. 

Gold experienced heavy selling, with the precious metal closing below $1,800/oz and ending down by 0.52% at $1,764.23 ranging between a low of $1,761.04 and $1,797.31.

The US dollar extended its advance against a basket of currencies in a classic short squeeze as it built on gains logged after the US Federal Reserve surprised markets earlier in the week with a hawkish hold.

The dollar index DXY, which tracks the greenback against six major currencies, was printing its highest levels since mid-April at 92.4050 which put the index on pace for its best weekly jump in about 14 months.

Risk appetite is lower and US stocks are under pressure as the Fed has signalled that it will raise interest rates and end emergency bond-buying sooner than expected.

''Considering that gold was set-up for a pullback like a speed bump on the racetrack, with speculative and physical flows slowing, the ongoing pullback likely has more room to run.,'' analysts at TD Securities explained.

''CTAs can add to their shorts below $1730/oz, which suggests some potential for sustained downside momentum.''

Meanwhile, the screw was turned on Friday when St. Louis Federal Reserve President James Bullard said that the US central bank's toward a faster tightening of monetary policy was a "natural" response to economic growth and particularly inflation moving quicker than expected.

In this regard, on a quieter week ahead in terms of data, the emphasis will be on the shorter end of the US yield curve which is dollar positive.

This may help to push gold below critical weekly support where the counter trendline meets that late April weekly prices, May highs and Nov lows in horizontal structure in the $1,760s. 

Gold technical analysis

The daily chart shows that the price is on the verge of a weekly bullish Head and Shoulders with the first upside target coming with a confluence of the prior lows and a 38.2% Fibonacci retracement level.