Gold Price Forecast: XAU/USD climbs above $1700, as US T-bond yields plunge

• Gold price rises courtesy of falling US T-bond yields undermining the greenback.
• Sentiment improvement keeps global equities in the green.
• US manufacturing data weakening and Tuesday’s job vacancies falling depict the economy is feeling the Fed’s job.
• Fed officials repeatedly said the need to for higher rates amidst a high inflation environment.

Gold price advanced to three-week highs on Tuesday, as US T-bond yields continue to fall amidst US economic data showing that the Federal Reserve increases to the Federal funds rate (FFR) started to impact the economy as the US central bank scrambles to tame inflation. At the time of writing, XAU/USD is trading at $1723 a troy ounce, up by 1.40%.

Market sentiment swings, keep global equities on the right foot. The greenback is weakening as US treasury bond yields dropped like a stone, with the US 10-year bond yield down six bps at 3.587%. Following suit is the US 10-year Treasury Inflation-Protected Securities (TIPS) yield, a proxy for real yields, creeping lower to 1.367% after hitting a yearly high of 1.70%.

US economic data released on Monday flashed signs that manufacturing activity in the country is slowing. Sub-components of the ISM’s reports portrayed that new orders are contracting while prices are easing.

During the Tuesday session, the US docket featured factory orders for August were unchanged, following July’s drop of 1%, as the Department of Commerce reported. At the same time, job openings in the US fell, though they remained at higher levels, as reported by the Labor Department. The US JOLTs report for August showed that vacancies dropped from 11.239M in July to 10.053M in August.

Therefore, the Federal Reserve decisions are beginning to function, but Fed officials remain laser-focused on bringing inflation down.

Reflection of the aforementioned is the NY Fed President John Williams saying that even though tighter monetary policy has begun to control demand and reduce inflation, “our job is not yet done.” Williams added that policy “is not yet in a restrictive place for growth,” according to him, rates need to go higher.

Later, Atlanta’s Fed Bostic said shifts in global supply chains exert upward pressure on prices. Meanwhile, Richmond’s Fed Barkin added that a strong dollar has potential spillover effects on the global economy but stressed that the Fed is focused on the US economy.

On Tuesday, the San Francisco Fed Mary Daly said that the Fed is committed to getting inflation down and echoed the NY Fed Williams comments of needing additional rate hikes.

What to watch

The US economic docket will feature the ADP Employment change, alongside the US International Trade, and the S&P Global Services and Composite PMIs for September.

XAU/USD Key Technical Levels