Gold price soars to nearly one-week high of $1,735 after steep decline in US bond yields.

• The price of gold rose for the second day in a row and reached a record high on Friday.

• Fears of a recession and falling US bond rates help to underpin the safe-haven gold.

• The trend of tighter monetary policy globally might work against the non-yielding XAUUSD.

The gold price gains momentum for the second day in a row, building on the goodish overnight rebound from the $1,680 zone, or its lowest level since March 2021. During the North American session, the momentum propels the XAUUSD to a level close to $1,737, which is more than a week’s high. However, any significant upside remains elusive, so aggressive optimistic traders should use care.

Fears of a recession support the price of gold.

The ongoing concerns about a potential global recession are a significant reason for supporting gold as a haven. Following the poor announcement of the Eurozone PMI numbers on Friday, the worries reemerged. In reality, the preliminary S&P Global/BME research manufacturing activity report revealed that the decline in German and French business activity accelerated in July.

Reduced US bond rates provide more backing.

The rates on US Treasury bonds continue to decrease as concerns about the deteriorating economic picture grow. Weekly Jobless Claims and the Philly Fed Manufacturing Index from Thursday’s US macro data show an economic downturn. This has caused the standard 10-year US government bond yield to drop to its lowest point in more than two weeks, which is considered another factor is supporting the gold price.

Major central banks act aggressively to limit gains.

However, the likelihood of a more forceful response from important central banks to rein in surging inflation may discourage speculators from making substantial optimistic wagers on the non-yielding gold. Following the trend of tightening worldwide, the European Central Bank on Thursday increased its benchmark interest rates for the first time since 2011. The central bank announced a massive rate rise of 50 basis points and signaled more tightening in upcoming sessions.

Additionally, the Bank of England Governor Andrew Bailey’s hawkish comments on Wednesday increased the likelihood of a 50 basis point rate increase in August, the most since 1995. At its forthcoming policy meeting on July 26–27, the Federal Reserve is also anticipated to increase rates by an additional 75 basis points. In addition, the Reserve Bank of Australia hinted earlier this week that higher interest rates were necessary to rein in growing inflation.

Technical analysis of the gold price

The immediate resistance level of $1,710-$1,712 has now been successfully overcome, and the price of gold is set to increase. However, any further increase may draw some sellers in the vicinity of the $1,745–$1,746 supply area. As a result, the XAUUSD’s gains should be capped close to the $1,752 area, which should serve as a turning point and assist in identifying the next leg of a directional advance.

The $1,712-$1,710 resistance breakpoint, on the other hand, seems to be protecting the immediate downside currently before the $1,707 region and the $1,700 round-figure threshold. A convincing break below the latter would indicate that the attempted recovery has failed and would cause new selling to start. The price of gold may then revert to the YTD low, reached on Thursday around the $1,680 area, before finally falling to the next necessary support close to the $1,670 horizontal zone.