Gold Price Forecast: XAU/USD fluctuates around $1840 on high US bond yields, risk-off mood

• Gold price slides after failing to break Monday’s high of 1847.45, down 0.08%.
• US S&P Global PMIs for February were better than expected, except for the Manufacturing Index, which remained in contractionary territory.
• China-US tensions around military aid on Russia dented market mood.

Gold price slides in the North American session while the US Dollar (USD) rises sharply on risk aversion. Expectations that the US Federal Reserve (Fed) would tighten monetary conditions “aggressively” keeps investors uneasy. At the same time, Fed officials hawkish rhetoric added to those speculations, with money market futures expecting rates as high as the 5.25%-5.50% range. The XAU/USD is exchanging hands at around 1838.58.

US business activity in February improved

US equities opened in the red as sentiment remains sour. S&P Global revealed that the US economy in February posted a recovery in business activity, with all the indices above estimates. However, as measured by the S&P Global Manufacturing PMI, manufacturing activity remained at 47.8 in the contractionary territory.

“Despite headwinds from higher interest rates and the cost of living squeeze, the business mood has brightened amid signs that inflation has peaked and recession risks have faded,” said Chris Williamson, a chief business economist at S&P Global Market Intelligence. He added that supply constraints had alleviated delivery times.

US bond yield capped Gold’s advance

The US Dollar Index, a gauge of the buck’s value vs. a basket of currencies, began to trim some of its earlier gains following the release of the PMI report, after hitting a daily high of 104.260, it’s down 0.12% at 103.878. Contrarily, the US 10-year benchmark note rate sits at 3.908%, gains six bps, capping the yellow metal rally, with XAU’s bulls eyeing a test of the $1850 area.

Geopolitical-wise, the US Secretary of State Anthony Blinken warned China not to provide further lethal military help to Russia in its invasion of Ukraine, adding that “serious consequences” would happen if it did so. In the meantime, US President Joe Biden visited Ukraine’s President Zelenskyy in Kyev, showing US support after Blinken’s comments.

What to watch?

Aside from this, Wednesday’s US economic docket will feature the latest FOMC meeting minutes, which could shed some light regarding the forward path that the US Federal Reserve would follow in monetary policy.

Gold technical analysis

XAU/USD’s daily chart suggests the yellow metal as neutral biased. It should be said that if XAU/USD does not print a new high in the week, that could pave the way for further downside. Oscillator-wise, the path of least resistance is downwards, with the Relative Strength Index (RSI) in bearish territory aiming south, while the Rate of Change (RoC) displays buying pressure is fading.

Therefore, the XAU/USD first support would be the 100-day Exponential Moving Average (EMA) at $1820.45, followed the last week’s low of $1818.97. A breach of the latter will expose the $1800 mark.