Gold Price Decline Amid USD Rally and Upcoming US Data Focus

Gold prices experienced a significant decline during the past week as the US Dollar rally gained momentum. Market attention is expected to shift back to upcoming US data releases in the coming week. The XAU/USD bearish bias may persist as long as the $1,890-$1,900 area remains as resistance.

Despite showing resilience in the face of a hawkish Federal Reserve outlook in the previous week, Gold prices faced significant downward pressure due to broad-based US Dollar (USD) strength and surging US Treasury bond yields. By the end of the week, XAU/USD had lost more than 2%.

Events of the Past Week

The week began with a risk-averse market sentiment, which favored the USD and made it challenging for XAU/USD to gain traction. This sentiment was triggered by news that China’s heavily indebted real-estate developer Evergrande was unable to issue new debt due to an ongoing investigation into its subsidiary, Hengda Real Estate Group Co Ltd. This led to a sell-off in global equity indexes.

Consumer sentiment data in the US, released on Tuesday, showed a continued deterioration in August, with the Conference Board’s Consumer Confidence Index falling to 103.00 in September from 108.7 in August. The Consumer Expectations Index also declined. Additionally, a lack of progress in US budget negotiations raised concerns about a potential government shutdown and its impact on the US credit rating.

Efforts to avert a shutdown with a stopgap funding bill faced opposition, leading to a bond sell-off. The 10-year US Treasury bond yield climbed to its highest level since 2007, exceeding 4.6%. This situation put further pressure on Gold prices, leading to a break below $1,900.

The US Bureau of Economic Analysis (BEA) confirmed that real Gross Domestic Product (GDP) expanded at an annual rate of 2.1%, in line with expectations. Other US data revealed 204,000 first-time applications for unemployment benefits in the week ending September 23. Although the USD corrected lower at one point, the funding deadlock kept 10-year yields near multi-year highs, keeping XAU/USD on the back foot.

Inflation data in the US showed an annual Core PCE Price Index increase of 3.9%, down from 4.3% in July. These figures, while as expected, failed to trigger significant market reactions.

What to Expect Next Week

The weekend’s political developments in the US could influence XAU/USD’s opening for the week. A deal between Republicans and Democrats to avert a shutdown may result in a decline in US Treasury bond yields, potentially boosting Gold prices. However, a government shutdown could lead to a flight to safety and weigh heavily on Gold.

The US economic calendar includes the ISM Manufacturing PMI on Monday, with a forecasted increase to 47.8 in September from 47.6 in August. A reading above 50 could initially boost the USD, but market focus will remain on bond markets depending on budget negotiation outcomes.

Market attention will also be on Asian equity indexes following news of Chinese authorities investigating Evergrande’s director and executive chairman, Hui Ka Yan, on suspected crimes.

On Wednesday, the ISM Services PMI is expected to come in at 54, with a print close to or below 50 potentially affecting the USD. The Prices Paid Index, an inflation component, will also be closely monitored.

The US Bureau of Labor Statistics will release the September jobs report on Friday, with Nonfarm Payrolls forecasted to rise by 150,000. A print at or above 200,000 could strengthen the USD, while smaller-than-expected job growth may lift XAU/USD as dovish Fed expectations dominate.

– From a technical perspective, the price could continue its bearish momentum towards $1,830 or beyond, following the trend.

Our previous forecast during the recent trading week.