Gold Price Forecast: XAU/USD retreats from $1,635 as China-linked optimism fails to tame yields

• Gold price fades bounce off three-week-old horizontal support.
• Covid updates from China offered intermediate bounce amid a light calendar.
• Strong yields, hawkish central banks keep XAU/USD bears hopeful.

Gold price (XAU/USD) reverses from intraday high, after a brief jump from the monthly low, as it drops to $1,630 during early Thursday morning in Europe.

Headlines suggesting China’s debate on reducing quarantine time for international travelers seemed to have triggered the bullion’s previous rebound. The intermediate bounce, however, couldn’t last long as the US Treasury yields remain near the multi-year high flashed earlier in the day.

US 10-year Treasury yields refreshed a 14-year high above 4.0%, around 4.15% by the press time while its two-year counterpart stays strong near the highest level since 2007, up 0.30% intraday near 4.57% at the latest.

With the firmer yields, stock futures and equities in the Asia-Pacific region keep the red, tracking Wall Street’s close. Though, the US dollar fades the previous day’s rebound amid a sluggish session. That said, the US Dollar Index (DXY) reverses the Asian session gains and prints 0.10% loss on the day as it stays depressed near the intraday low of 112.80 at the latest.

While tracing the firmer yields and the risk-off mood, the market’s fears of higher inflation and the global central banks’ aggressive rate hike, led by the Fed, gain major attention. On the same line could be the headlines surrounding the US-China tussles over Taiwan and the Russia-Ukraine tension.

Looking forward, a light calendar with second-tier US data relating to jobs and housing can restrict short-term XAU/USD moves but the bears are likely to keep the reins amid broad pessimism.

Technical analysis

The oversold RSI (14) line joins a horizontal support area from September 26 to challenge the short-term gold price downside near $1,620. Even so, the metal’s sustained trading below the 200-SMA level surrounding $1,678 and bearish MACD signals favor sellers.

That said, recovery needs validation from a two-week-long resistance line, close to $1,643 by the press time, to lure short-term buyers.

Meanwhile, a one-week-old descending trend line offers immediate support to the quote near $1,618 before directing it to the latest trough near $1,614-15.

Hence, the XAU/USD is likely to witness further downside but the room to the south appears limited.

Gold: Four-hour chart

Trend: Limited downside expected