Gold Price Forecast: XAU/USD drops from 7-week high  as US economic data fuels Fed rate hike fears

• US Initial Unemployment Claims data came in at 228K, better than forecasts and previous figures of 240K and 237K, respectively.
• US Existing Home Sales for June declined by 3.3%, with sales at 4.16M, below both the May figures of 4.3M and analyst forecasts of 4.2M.
• Market odds for a Fed rate hike beyond the July meeting increase to 32.2%, up from last week’s 19.8%, as per the CME FedWatch Tool.

Gold price slides from 7-week highs at $1,987.42, as economic data from the United States (US) reignited fears the US Federal Reserve (Fed) would remain tightening conditions past the July meeting. Hence, US Treasury bond yields soared, a headwind for the yellow metal. The XAU/USD is exchanging hands at $1,969.30, down 0.35%.

Gold prices face headwinds as stronger-than-expected US labor market data reinvigorates US rate hike expectations

XAU/USD turned downwards after the US Bureau of Labor Statistics (BLS) revealed that unemployment claims came at 228K, below estimates, and prior’s week, 240K, and 237K, respectively. Although Continuing Claims rose by 33K to 1.754M from 1.721M, the data portray a robust labor market, meaning the Fed would need to act and maintain rates “higher for longer.”

Other data showed the US housing market decelerated, as Existing Home Sales dived -3.3% in June, with sales coming at 4.16M beneath the 4.3M in May and missing 4.2M forecasts.

Given the backdrop, traders are reassessing whether the Fed would raise rates after next week’s Federal Open Market Committee (FOMC) meeting as market participants have priced in a 25 bps hike to 5.25%-5.50%.

According to CME FedWatch Tool, there is a 32.2% chance of the Fed increasing rates to 5.50%-5.75%, from one week 19.8% odds.

Consequently, as shown by the US Dollar Index (DXY), the greenback rose, climbing 0.56% at 100.850, underpinned by high US Treasury bond yields. The US 10-year Treasury note is gaining ten basis points (bps) and yields 3.852%, while US Real Yields, as portrayed by 10-year TIPS,  advance five bps to 1.580%.

Therefore, Gold is doomed for the rest of the session as traders await another round of incoming US data. Fears of a worldwide economic slowdown could trigger flows toward safe-haven assets, which could bolster the yellow metal’s appeal. Nevertheless, traders should note that higher US Real yields could dent XAU’s flows in favor of the US Dollar.

XAU/USD Price Analysis: Technical outlook

From a technical standpoint, XAU/USD is trading neutral to upward biased, as strong resistance around $1985 was difficult to overcome. Prices began trending toward a downslope resistance trendline drawn from May highs, which turned support at around $1,960/70, halting Gold’s drop. If prices extend beyond the latter, key support levels would emerge at the confluence of the 50 and 20-day EMAs a $1,948/47, followed by the 100-day EMA at $1,938.35. Conversely, if XAU/USD surpasses $1,985, that could pave the way to test $2,000.