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The outlook remains negative for Gold despite oversold readings. Gold prices dropped by more than $30 during the US session and remain under pressure amid a stronger US dollar and higher US Treasury yields. Technical factors also weighed on the yellow metal. XAG/USD bottomed at $1,942 before modestly rebounding.
The US dollar jumps following positive US economic data. The Gold Index is rejected from above $1,980, reversing sharply and breaking below $1,950. At the time of writing, the precious metal is trading at $1947.82 per ounce.
Data from the US showed that the economy unexpectedly accelerated in the second quarter of 2023, with real GDP expanding at 2.4%, above the 2% recorded in the first quarter and the 1.8% of market consensus. Also, Jobless Claims and Durable Goods Orders surpassed expectations. The numbers provide more evidence that monetary policy tightening has not done much damage to the economy.
Following the release of the numbers, Gold experienced a sharp reversal as the US Dollar rallied. US yields jumped, with the 10-year reaching 3.98% and the 2-year to 4.95%. The US Dollar Index rose to its highest level in two weeks, above 101.60.
Gold prices received no love from the European Central Bank (ECB) meeting. While the central bank raised rates by 25 basis points, it set the stage for a potential pause at the September meeting. However, Eurozone yields edged higher, following US Treasury bonds. Some positive flows came after Nikkei reported that the Bank of Japan plans to discuss a tweak to allow rates over 0.5% in its Yield Curve Control policy.
The outlook now shows some potential for further losses in the short term for metals after Thursday’s reversal, given the context of higher yields and a stronger US dollar. Data shows that even if the Fed pauses in September, the economy can handle higher interest rates for a longer period. Another positive for the US economy is the decline in inflation indicators, which puts it in a better position than European countries.
The sharp decline in Gold has put bears in control in the short term. As long as XAU/USD remains below $1,950, more losses seem likely. The next support stands at the $1,942 area, and below that, attention would turn to $1,935. A slide below the latter would increase bearish pressure, triggering more losses, probably towards $1,920. Technical indicators in the four-hour chart are approaching oversold readings, but no signs of stabilization are present and the downward momentum is strong. A recovery above $1,950 would ease the bearish pressure.
Gold is hovering around the 20-day Simple Moving Average, which stands at $1,945. A daily close clearly below would add to the negative outlook. On the contrary, if it manages to remain above, XAU/USD could continue to move sideways. A firm break above $1,980 would give bulls back control.
