XAU/USD to extend correction toward $1,780 as key resistance holds

  • XAU/USD is edging lower after closing in the negative territory on Tuesday.
  • Rising US Treasury bond yield seems to be weighing on gold.
  • Gold could extend its downward correction to $1,780.

After failing to break above the strong resistance area formed near $1,810 on Tuesday, the XAU/USD pair seems to have gone into a correction phase and was last seen losing 0.8% on a daily basis at $1,7800.

The modest USD strength and rising US Treasury bond yields are making it difficult for gold to preserve its strength mid-week. The US Dollar Index, which closed the first two days of the week in the negative territory, is currently posting small daily gains around 93.00. Additionally, the benchmark 10-year US T-bond yield is up 1% on the day at 1.3090%.

Earlier in the day, the data published by the US Census Bureau revealed that Durable Goods Orders in the United States declined 0.1%, or $0.4 billion, to $257.2 billion in July, compared to analysts’ estimate for a decrease of 0.3%.

Nevertheless, gold’s failure to clear the key 100-day and 200-day SMAs seems to have triggered profit-taking ahead of Friday’s highly-anticipated Jackson Hole Symposium, at which FOMC Chairman Jerome Powell will be delivering a speech.

Commenting on gold’s recent action, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, said that the precious metal could extend its correction toward $1,750.

“Gold has seen a strong bounce off the March lows at 1679.80/1677.83, which has now reached the 200-DMA at $1810. We suspect that this will repel the advance at least on the initial test and provoke some further consolidation,” Jones noted. “We would allow for a pullback towards $1750, the 29th June low and allow for an attempt at stabilization there. Near-term risks are on the downside but longer-term to fairly neutral/side lined.”

Gold Price Forecast: XAU/USD to suffer a correction lower towards $1750 – Commerzbank.

Gold technical outlook

As mentioned above, XAU/USD lost its bullish momentum after testing the $1,810 area, where the 100-day and 200-day SMAs are located. Moreover, the Relative Strength Index (RSI) indicator on the daily chart dropped slightly below 50, confirming the view that buyers are struggling to remain in control of dol’s action.

On the downside, the next static support is located at $1,780. A daily close below that level could open the door for additional losses toward $1,760.

On the other hand, the initial resistance is located at $1,790 (50-day SMA) ahead of $1,800 (psychological level) and $1,810. 

Additional technical levels to watch for