Gold price eased on its downtrend on Tuesday after entering the oversold territory in the previous session. A strong US dollar and rising Treasury yields have been the key bearish drivers.
Fundamentals
An ultra-hawkish stance by the Federal Reserve, recession concerns, and subsequent rallying of the US dollar have continued to weigh on gold price. In the past week, the US central bank approved an interest rate hike of 75 basis points; the third of its kind in a row. Besides, the Fed Chair warned of economic pain in coming months as its strives to deal with the 40-year high inflation.
The environment of high interest rates, coupled with the plunge in Sterling pound made gold more expensive for buyers holding other currencies. Besides, the benchmark 10-year Treasury yields hit a fresh 12-year high of 3.93 on Tuesday; lowering the appeal of the non-yielding bullion. Notably, the two factors will remain major drivers of gold price in the ensuing sessions.
In the data front, US durable goods orders on Tuesday, second quarter’s US GDP on Thursday, and PCE price index on Friday will be worth watching. Besides, the Fed Chair is scheduled to speak later on Tuesday.
Gold price prediction
On Monday, gold price entered the oversold territory with an RSI of 26. With the subsequent corrective rebound, the precious metal bounced off Tuesday’s intraday low of 1,621.76 to trade at 1,636.39 as at 06:43 a.m GMT. Even with the bounceback, it is still trading below the 25 and 50-day exponential moving averages as shown on its daily chart.
Based on both the fundamental and technical indicators, I expect gold price to remain on a downtrend for the remainder of the week. In particular, it may remain below the critical support-turn-resistance zone of 1,700.
Based on this bearish thesis, the range between the 25-day EMA at 1,690.82 and support level of 1,615 will be worth watching in the ensuing sessions. However, further rallying of the US dollar may give the bears an opportunity to retest a level last recorded in March 2020.
