Gold Price Forecast: XAU/USD drops to three-day lows amid surging bond yields, rate hike bets

• Gold turned lower for the second successive day and retreated further from the post-FOMC highs.
• A more hawkish Fed/BoE and rising US bond yields drove flows away from the non-yielding metal.
• A broad-based USD weakness did little to lend any support to the dollar-denominated commodity.

Gold struggled to capitalize on its modest intraday gains and once again started retreated from the 200-hour SMA barrier, around the $1,776-77 region. The prevalent risk-on mood – as depicted by a generally positive tone around the equity markets – was seen as a key factor that acted as a tailwind for the safe-haven precious metal. The global risk sentiment got a strong boost after the People’s Bank of China injected more money into the banking system, which eased concerns about the fallout from China Evergrande's debt crisis.

The XAU/USD has now drifted back into the negative territory for the second successive day and was further pressured by a more hawkish tilt from major central banks. The Fed on Wednesday indicated that moderation in the pace of asset purchases may soon be warranted if economic progress continues broadly as expected. Adding to this, Fed Chair Jerome Powell said that the pandemic-era asset purchases could stop completely by mid-2022. Moreover, the so-called dot plot showed a growing inclination to raise interest rates in 2022.

On the other hand, the Bank of England policymakers noted that a modest tightening over the forecast period was likely to be necessary. This, along with a sudden pickup in the US Treasury bond yields, drove flows away from the non-yielding gold and dragged spot prices to three-day lows, around the $1,754 region during the early North American session. This, to a larger extent, helped offset a broad-based US dollar weakness and did little to benefit the dollar-denominated commodity or stall the ongoing retracement slide from weekly tops.

Technical outlook

From a technical perspective, repeated failures near the 200-hour SMA suggests that the recent bounce from over one-month lows has already run out of steam. A subsequent fall below the $1,752-50 region will reaffirm the negative bias and turn the XAU/USD vulnerable. The downward trajectory could then get extended towards the $1,729 intermediate support before gold eventually drops to challenge the $1.700 round-figure mark.

On the flip side, the $1,776-78 region (200-hour SMA) now seems to act as an immediate resistance ahead of the post-FOMC swing highs, around the $1,787 region. Some follow-through buying has the potential to lift gold beyond the $1,800 round figure, towards testing the very important 200-day SMA hurdle, currently near the $1,806-07 region.