Gold Price Forecast: XAU/USD Drop on Rising US Yields After Fitch Downgrade of US Debt

• The XAU/USD pair extended its slide as US bond yields, especially 10-year ones, broke above 4%.
• The downgrade of the US government credit rating from AAA to AA+ has affected market sentiment, leading investors to take refuge in the Dollar and the Japanese Yen.
• ADP’s national employment report showed private hiring grew by 324,000 people, beating estimates, ahead of crucial nonfarm payrolls data on Friday.

The price of Gold extends its fall to two consecutive days, while the US bond yield rises due to the change in market sentiment. This, along with the strength of the US Dollar (USD) following the upbeat US jobs report, is the main driver of the XAU/USD price action. At the time of writing, XAU/USD is trading at $1,937.75, down 0.73%.

Gold price falls for the second day in a row, while US yields rise, boosting the Dollar

Wall Street is watering as sentiment remains depressed following Fitch’s downgrade of the US debt rating. Despite this, US Treasury yields rose, led by the US 10-year Treasury yield at 4.067%, up four basis points after reaching the 4.126% during the North American session.

Fitch’s review of the US government debt rating, from AAA to AA+, was blamed “on the perception of deteriorating governance in the US, which, according to the agency, gave less confidence in the ability government to deal with fiscal and debt problems,” according to sources quoted by Reuters. Hence, market participants were looking for safety, with the US dollar and the Japanese yen (JPY) leading the way during the Wednesday session.

Meanwhile, the ADP national employment report reported that private hiring grew by 324,000 people, beating estimates of 189,000, ahead of Friday’s July US nonfarm payrolls data with forecasts of around 200,000. people added to the labor force.

Turning to Tuesday’s data, the ISM Manufacturing PMI was in recessionary territory below the 50 mark for the ninth straight month, though it continued to improve; compared to June 46, it reached 46.4. Although it was an improvement, the trend appears to be slowing down.

Meanwhile, the Dollar Index (DXY), which measures the value of the dollar against a basket of six currencies, rose 0.54% to 102.514, extending its gains to six straight days, with traders eyeing a break above the 100-day EMA at 102,561.

XAU/USD Price Analysis: Technical Perspective

Despite the fact that XAU/USD made a higher high on Friday the 20th of the day at $1,987.42, XAU/USD returned below the $1,950 zone, extending its losses below the EMAs. of 20 and 50 days, at $1,952.02 and $1,951.05, respectively. Furthermore, the XAU/USD fell below the 100 day EMA, opening the door for further declines. However, the appearance of a “bullish flag” may pave the way for further rises, with prices approaching $2,000. On the other hand, if XAU/USD breaks below $1,933.07, it would compound the decline towards the 200-day EMA at $1,906.99.