Gold Price Forecast: XAU/USD drops to multi-day low, below $1,930 level amid stronger USD

• Gold witnessed heavy selling on Monday and reversed the recent gains to a near two-week high.
• Hopes for a diplomatic solution to end the war in Ukraine undermined the safe-haven XAU/USD.
• Hawkish Fed expectations, rising US bond yields, stronger USD added to the intraday selling bias.

Gold came under renewed selling pressure on the first day of a new week and continued losing ground through the early part of the European session. The downward trajectory dragged spot prices to a three-day low, below the $1,930 level in the last hour and was sponsored by a combination of factors. Ukrainian President Volodymyr Zelensky said on Sunday that they are prepared to discuss adopting a neutral status as part of a peace deal with Russia. This comes ahead of the Russia-Ukraine ceasefire talks in Turkey later this week and raised hopes for a diplomatic solution to end the war. This, in turn, was seen as a key factor that undermined the safe-haven XAU/USD.

Apart from this, stronger US dollar and higher US Treasury bond yields exerted additional pressure on the dollar-denominated gold. The recent remarks by a slew of influential FOMC members, including Fed Chair Jerome Powell, convinced investors that the Fed would adopt a more aggressive policy response to combat stubbornly high inflation. Moreover, the markets also seem worried that rising commodity prices would further put upward pressure on the already elevated consumer prices. This, in turn, pushed the yield on the benchmark 10-year US government bond to a nearly three-year high, beyond the 2.5% threshold, which further drove flows away from the non-yielding yellow metal.

That said, the latest COVID-19 outbreak in China and the imposition of a two-stage lockdown in the city of Shanghai could drive some haven flows and lend support to gold prices. Nevertheless, the XAU/USD eroded a major part of its recent gains to a near two-week high. In the absence of any major market-moving economic releases, the US bond yields will influence the USD price dynamics and provide some impetus to the XAU/USD. Apart from this, traders will take cues from fresh developments surrounding the Russia-Ukraine saga to grab some short-term opportunities around the metal.

Technical outlook

From a technical perspective, the recovery move from sub-$1,900 levels stalled near a resistance marked by the 38.2% Fibonacci retracement level of the recent slump from the $2,070 area. A subsequent slide below the 23.6% Fibo. level might have shifted the bias back in favour of bearish traders and support prospects for further losses. Hence, some follow-through weakness towards testing the next relevant support, around the $1,918-$1,916 horizontal zone, remains a distinct possibility.

On the flip side, the $1,945 level now seems to act as an immediate hurdle ahead of the $1,958-$1,960 region. The latter coincides with the 38.2% Fibo. level, which if cleared decisively could trigger a short-covering move. Gold could then accelerate the momentum towards the 50% Fibo. level, around the $1,984 region before aiming back to reclaim the $2,000 psychological mark. This is closely followed by the 61.8% Fibo. level, around the $2,005 area, which could keep a lid on any further gains for the XAU/USD and be seen as a key pivotal point for short-term traders.

Gold 4-hour chart

Key levels to watch