Gold price drops to fresh YTD low, bears await sustained break below $1,700 mark

Gold price dropped to a fresh 11-month low during the early North American session.
The USD shot to a nearly two-decade high and continued exerting downward pressure.
Aggressive Fed rate hike bets, rising US bond yields contributed to the intraday selling.
Recession fears, the risk-off mood failed to impress bulls or lend support to the metal.

Gold price struggled to capitalize on the previous day's goodish recovery move from the $1,707 area and came under renewed selling pressure on Thursday. The intraday downfall extended through the early North American session and dragged the XAUUSD to its lowest level since August 2021, with bears still awaiting a sustained break below the $1,700 mark.

Gold price pressured by sustained USD buying

The US dollar resumed its relentless rise and shot to a fresh two-decade high amid the prospects for a more aggressive policy tightening by the Federal Reserve. A stronger USD was seen as a key factor that exerted heavy downward pressure on the dollar-denominated gold. The US Labor Department reported that the headline US CPI accelerated to 9.1% in June - the highest level since November 1981. The data sealed the case for another supersized Fed rate hike move and continued underpinning the buck.

Also Read: Gold Price Forecast: For how long can XAUUSD defend $1,700?

Elevated bond yields further weighed on XAUUSD

The US Treasury bond yields moved higher after Atlanta Fed President Raphael Bostic said on Wednesday that everything is in play to curb the persistent rise in inflationary pressures. The markets were quick to react and started pricing in the possibility of a historic 100 bps rate hike later this month and pushed the yield on the benchmark 10-year US government bond back closer to the 3.0% threshold. Elevated US Treasury bond yields further contributed to driving flows away from the non-yielding gold.

Stronger PPI print validated hawkish Fed expectations

Thursday's release of the US Producer Price Index (PPI), which surpassed expectations by a big margin, reaffirmed hawkish Fed expectations. Data published by the US Bureau of Labor Statistics showed that the gauge for final demand goods accelerated to 11.3% on a yearly basis in June as against consensus estimates pointing to a modest downtick to 10.7% from 10.9% in May. This, to a larger extent, helped offset a rise in the US Weekly Initial Jobless Claims to the highest level since November 2021.

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US PPI historic chart

Recession fears failed to lend any support

Even the worsening global economic outlook failed to impress bulls or lend support to the safe-haven gold. Investors remain concerned that rapidly rising higher borrowing costs, the ongoing Russia-Ukraine war and fresh COVID-19 lockdowns in China would pose to global economic growth. In fact, Bank of America economists forecast a “mild recession” in the US this year. This continued taking its toll on the risk sentiment, which was evident from an extended selloff in the equity markets.

Gold price technical outlook

Gold price, for now, has managed to hold above the $1,700 mark to lend some support, which if broken decisively would be seen as a fresh trigger for bearish traders. The XAUUSD could then accelerate the downfall towards testing September 2021 low, around the $1,787-$1,786 region. The downward trajectory could further get extended towards the 2021 yearly low, near the $1,677-$1,676 area.

On the flip side, the overnight swing high, around the $1,745 region, now seems to act as an immediate strong barrier ahead of the $1,749-$1,752 supply zone. Sustained strength beyond could trigger a short-covering move towards the $1,767-$1,770 strong horizontal support breakpoint, above which bulls might aim to reclaim the $1,800 round-figure mark.