Gold price struggles to build on recovery gains amid rising US bond yields

• Gold price attracts some haven flows amid the post-FOMC sell-off in the equity markets.
• The Fed’s hawkish outlook continues to lift the US bond yields and caps the XAU/USD.
• Traders look to the US Q3 GDP for some impetus ahead of the US PCE data on Friday

The gold price (XAU/USD) trades just above the $2,600 mark, having lost a portion of its intraday recovery gains. However, it remains up over 0.40% for the day as it enters the European session on Thursday. The Federal Reserve’s (Fed) hawkish prognosis on Wednesday remains supportive of a further increase in the yields of US Treasury bonds to a multi-month high. This, in turn, helps the US Dollar (USD) maintain its stability near a two-year high and serves as a significant headwind for the non-yielding yellow metal.

In the interim, the Federal Reserve’s announcement that it would reduce the rate of interest rate reduction is accompanied by ongoing concerns regarding trade wars and geopolitical risks, which in turn reduces investors’ appetite for riskier assets. This could potentially maintain the modest recovery gains of the gold price and continue to generate some haven flows.

Nevertheless, it would be judicious to await robust follow-through buying before concluding that the XAU/USD’s recent abrupt decline from a high of more than one month has come to an end.
The risk-off sentiment provides some support to the gold price, but the Fed’s hawkish outlook limits its gains.

The US equity markets experienced a sell-off as a result of the Federal Reserve’s decision to reduce its benchmark policy rate for the third time since September and to indicate that it would slow down the tempo of rate cuts, as originally anticipated.
The spillover effect on Thursday caused a significant decline in Asian equities and benefited traditional safe-haven assets. This led to some short-covering around the Gold price, which helped it rebound from a one-month low.

According to the “dot plot,” officials anticipate that the federal funds rate will decrease to 3.9% in 2025, which corresponds to two additional 25 basis point interest rate reductions in comparison to the previous forecast of four cuts in September.
Fed Chair Jerome Powell stated in his post-meeting press conference that inflation has decreased substantially over the past two years, despite the fact that it remains somewhat elevated in comparison to the central bank’s 2% long-term objective.

The benchmark 10-year US government bond’s yield has reached its highest level since May, which has helped the US Dollar maintain its overnight gains and reach a two-year high. This has also capped the non-yielding yellow metal.
Traders are anticipating the release of the final Q3 GDP print and Weekly Initial Jobless Claims on Thursday, which will provide short-term momentum later in the North American session.
Meanwhile, the market’s focus will transition to the US Personal Consumption Expenditures (PCE) Price Index, or the Federal Reserve’s preferred inflation gauge, on Friday. This data will have a significant impact on the USD and the XAU/USD in the near term.
The technical setup of the gold price is advantageous for bearish speculators, as the 100-day SMA support breakdown is currently in effect.

From a technical standpoint, the overnight close below the 100-day Simple Moving Average (SMA) for the first time since October 2023, as well as the $2,600 threshold, was perceived as a new catalyst for bearish traders.

Additionally, oscillators on the daily chart have recently begun to exhibit negative momentum, which implies that the downward trajectory for the Gold price is still viable. In the interim, Thursday’s endeavor to recover stagnates in the $2,618 region, which is the 23.6% Fibonacci retracement level of the most recent decline from the one-month high reached last week. The aforementioned area should now serve as a pivotal point, above which a new round of short-covering could propel the XAU/USD toward the $2,635 area, or the 38.2% Fibo., en route to the 50% retracement level, which is located in the $2,655-2,656 supply zone.
Conversely, the Asian session low, which is currently located in the $2,584-$2,583 range, appears to be safeguarding the immediate downside.

The Gold price may attempt to challenge the November swing low, which is located in the $2,537-$2,535 range, if the next relevant support is established near the $2,560 area. The 200-day SMA support near the $2,470 region may be exposed by some follow-through selling, which could result in a subsequent decline below the $2,500 psychological mark.