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Gold price forecast as US dollar index and Treasury yields jump

Gold price remains in a downward trend this week, driven by the relatively strong US dollar and the rising US Treasury yields. It was trading at $4,120 on Tuesday morning, down from the August high of $4,692. This retreat may continue in the coming days as it continues forming a series of lower highs and higher lows.

Gold price drops as the US dollar and yields jump

Gold, the most popular precious metal, has come under pressure in the past few months as demand has remained elusive. 

The SPDR Gold ETF (GLD) has attracted just $1.31 billion in assets in the last 30 days, while the iShares Bitcoin Trust (IBIT) has gained $2 billion.

Gold has been affected by the ongoing macro backdrop that has seen US government bond yields surge. The ten-year yield jumped to 5.32%, its highest level since 2002, while the two-year has soared to 4.831%. 

Gold is a non-yielding asset and its demand normally drops whenever government bonds are paying a higher yield. 

US yields have jumped because of the rising government debt that has soared to over $40.2 trillion. It crossed the $40 trillion mark in August, meaning that it will cross the $41 trillion mark in early 2027 and $50 trillion by 2030. Many economists view this as a highly unsustainable trajectory. 

Meanwhile, the US Dollar Index (DXY) has continued rising this week. It jumped to 102.53 on Monday as the euro continued its strong downward trend. This surge happened even after the US published weak nonfarm payrolls (NFP) and inflation report.

A report released on Friday showed that the nonfarm payrolls rose by just 29,000 as the unemployment rate rose to 4.2%. Another report showed that US inflation drifted lower in August. These numbers lowered the possibility of the Federal Reserve hiking interest rates in October.

Looking ahead, the next key catalyst for gold will be the upcoming Federal Reserve minutes that comes out on Wednesday. These minutes will provide more color on what officials deliberated in the last meeting, in which they decided to hike rates by 0.25%. 

In most cases, these minutes tend to move the market because they provide hints on what to expect. This time, however, it is unclear whether they will have a significant impact since conditions have changed after the last NFP and PCE inflation numbers.

Gold price technical analysis

Gold price chart | Source: TradingView

The daily chart shows that gold’s attempts to recover stalled at $4,692 in August. Since then, it has slumped to the current $4,123, its lowest level since August 5. 

It has remained below the 50-day Exponential Moving Average (EMA) and the Supertrend indicator. At the same time, the Supertrend has remained in the red, a sign that bears remain in control.

On the positive side, gold has formed a falling wedge pattern, which is made up of two descending and converging trendlines. These two lines are nearing their convergence, which may lead to a rebound. 

As such, technicals are sending mixed signals. A bullish breakout will be confirmed if it moves above the upper side of the wedge. On the other hand, a drop below the lower side of the wedge will point to more downside to $3,946.

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