Gold Price Forecast: XAU/USD eyes further losses below $1,700 amid firmer yields, hawkish Fed bets

• Gold price dropped to the lowest levels since April 2020 on breaking the key support, tests 61.8% FE.
• US dollar cheers the data-driven strength of the yields, odds of Fed’s aggression.
• Risk-negative headlines from China, Europe also weigh on the XAU/USD price.
• Preliminary readings of Michigan Consumer Sentiment Index could entertain traders.

Gold price (XAU/USD) remains on the back foot at the 2.5-year low as bears attack $1660 support during Friday’s Asian session. The metal dropped the most since early July the previous day after breaking the short-term key support line. The reason could be linked to the firmer US dollar and yields that propel the hawkish Fed bets.

Increasingly hawkish Fed bets appear to be the underlying reason behind the US dollar’s strength, which in turn drowns the XAU/USD price. Also keeping the metal bears hopeful are the firmer yields backed by the mostly stronger data.

On Thursday, US Retail Sales rose 0.3% in August versus 0.0% expected and July’s revised down -0.4%. Further, NY Fed Empire State Manufacturing Index improved to -1.5 in September compared to -31.3 in August and market expectation of -13. Alternatively, Philadelphia Fed Manufacturing Index declined to -9.9 for the said month compared to 2.8 expected and 6.2 prior. Additionally, US Industrial Production slid to -0.2% in August versus a market expectation for an expansion of 0.1% and downwardly revised prior to 0.5%.

Additionally, pessimism emanating from China and Europe are an extra burden on metal prices. Bloomberg ran a piece suggesting that China is likely to witness harder days than it witnessed in 2020. On the same line was the news surrounding the Sino-American tussles and the People’s Bank of China’s (PBOC) inaction. Elsewhere, fears that the Eurozone will remain in dire conditions despite having a good stock for winter joined hawkish comments from the European Central Bank (ECB) policymakers to keep the pessimism higher.

Against this backdrop, Wall Street closed in the red and the US Treasury bond yields were firmer. Further, the market’s pricing of the Fed’s 0.75% and 1.0% rate hikes in the next week’s Federal Open Market Committee (FOMC) also rose to 80% and 20% in that per the CME’s FedWatch Tool.

Although the risk-aversion can keep the gold bears hopeful amid a firmer US dollar, today’s readings of the Michigan Consumer Sentiment Index (CSI) for September will be important to watch for fresh impulse.

Technical analysis

A sustained downside break of the two-month-old support line, now resistance around $1,695, joins the bearish MACD signals to keep XAU/USD sellers hopeful of a fresh multi-month low. However, the oversold RSI (14) challenges the immediate downside around the 61.8% Fibonacci Expansion (FE) of the bullion’s April-August moves, near $1,660.

Should the metal price drops below $1660, which is more likely, the 78.6% FE level near $1,622 and the $1,600 threshold could quickly flash on the chart. However, a downward sloping support line from May, near $1,593, could challenge the gold bears afterward.

Alternatively, recovery moves not only need to cross the support-turned-resistance line near $1,695 but should also stay successfully beyond the $1,700 threshold to convince intraday buyers.

Even so, the 21-DMA and a three-month-old descending resistance line, respectively near $1,718 and $1,765, will question the metal’s upside before welcoming the bulls.

Gold: Daily chart

Trend: Further weakness expected