- Gold continues losing ground for the third straight day and drops to its lowest level since July 21.
- Bets for more aggressive Fed rate hikes, a positive risk tone continue to weigh on the XAU/USD.
- A modest intraday USD pullback lends support, for the time being, ahead of the US macro data.
Gold remains under heavy selling pressure for the third successive day and drops to its lowest level since July 21 on Thursday. The XAU/USD now seems to have entered a bearish consolidation phase and oscillates in a range around the $1,685-$1,690 region through the first half of the European session.
The prospects for a more aggressive policy tightening by the Fed turn out to be a key factor that continues to weigh on the non-yielding gold. Following surprisingly strong US consumer inflation data on Tuesday, the markets started pricing in the possibility of a full 100 bps rate hike at the September FOMC meeting. Fed funds futures indicate a 30% chance of such a move next week.
Furthermore, investors now expect the US central bank to deliver another supersized 75 rate increase in November, which remains supportive of elevated US Treasury bond yields. It is worth mentioning that the yield on the rate-sensitive two-year US government bond reached its highest level since November 2007 on Tuesday and the benchmark 10-year Treasury note stood tall near the YTD peak.
Apart from this, a generally positive tone around the equity markets further seems to exert downward pressure on the safe-haven precious metal. The US dollar, meanwhile, struggles to preserve its modest intraday gains, which, in turn, is seen lending some support to the dollar-denominated gold. The fundamental backdrop, however, remains skewed in favour of bearish traders.
Hence, any attempted recovery move could still be seen as a selling opportunity. Next on tap is the US economic docket, featuring the release of Retail Sales, Weekly Initial Jobless Claims, Regional Manufacturing Indices, and Industrial Production data. This, along with the US bond yields, the USD price dynamics and the broader risk sentiment might provide some impetus to gold.