Will China woes, falling bond yield support gold prices or not?

Gold prices were able to trade above their five-month low today, as the dollar retreated slightly against its major counterparts, although concerns over higher U.S. interest rates kept limited downside moves.

Since the start of the month, prices continued trading down and corrected nearly 1.9%, as strong labour market data and hawkish signals from the Federal Reserve kept markets positioning for higher U.S. interest rates.

Adding to this, China Evergrande Group – one of the country’s biggest real estate developers – has filed for protection from creditors in a US bankruptcy court as per the report. This adds to concerns about an expanding crisis in China’s property sector, which increases the safe-haven assets demand.

Meanwhile, correction in the US Treasury bond yields is lower and turns out to be another factor that benefits the non-yielding prices. The yield on the benchmark 10-year US government bond corrected sharply from a 10-month peak touched the previous day, however, the prospects for further rate hikes by the Federal Reserve could limit the downside momentum.

The minutes of the last Federal Open Market Committee meeting held on July 25-26 supported prospects for higher-for-longer interest rates in the United States (US) and kept the door open for one more 25 basis point (bps) lift-off later this year.

Technical Outlook

Gold prices were able to recover from a five-month low of 58275 and traded at 58467 today. Prices gained nearly 0.30%.  

The formation of a bullish Harami candle stick on the above chart is indicating a bullish momentum in the near future. Further, RSI 14 and its 9 SMA are also giving a bullish crossover, which is indicating that Gold prices are at an oversold zone and could rebound in days to come.

 However, prices would need to break their immediate resistance at 58520 in order to extend the recovery rally towards 58650-58750.00.  Else, every short time dip towards 58320-58310 could attract some buying activities.

On the downside, crucial support is seen at 58150 and a break below only prices will drop towards 57850-57600.