Gold price forecast as China, Saudi Arabia dump US Treasuries

Gold price continued its downward trend on Monday as the turmoil in the bond market continued. The XAU/USD pair tumbled to a low of 1,880, the lowest level since March 14th. It has fallen by more than 9.3% from the highest level this year.

China and Saudi Arabia are dumping USD

Gold price has come under intense pressure in the past few months even as challenges in the bond market continued. Bond yields, which moves inversely to prices, jumped to the highest level in more than a decade.

The yield of the 10-year Treasury rose to 4.346%, the highest level since 2007 as investors predicted that the Fed will continue hiking interest rates. The 30-year bond yield jumped to the highest point since 2012.

Notably, gold price has struggled even after some important news about the American economy. While the country’s budget deficit is soaring, some key buyers of US debt are trimming their stake.

China, the second-biggest holder of US debt, has reduced its stake to the lowest level in more than 14 years. It now holds about $850 billion of US debt, lower than its all-time high of over $1.2 trillion.

Saudi Arabia has also been dumping US Treasuries. It sold bonds worth over $3 billion in July, the third straight month. It now holds $108 billion. These countries are now moving these funds to other assets, including gold. Other notable buyers of gold are central banks in Turkey and India.

Governments are increasingly worried about the US as geopolitical risks jump. For example, there are concerns that the US could freeze their funds as they did with Russia at the onset of the war in Ukraine.

Further, they are spooked by the recent decision by Fitch to slash US credit rating from AAA to AA-. The US debt has jumped sharply in the past few years and analysts expect the situation will get worse. All these factors are bullish for gold, which is seen as a safe haven.

Gold price forecast

The daily chart shows that gold price has been in a deep sell-off in the past few months. It has now crossed the important support level at $1,957, the highest level on February 3rd. It has also moved below the important 50-day moving average and the crucial support at $1,892. 

The Relative Strength index (RSI) and the Stochastic Oscillator has drifted downwards. Therefore, the outlook for gold price is bearish, with the next important support level being at $1,800. In the long term, however, gold will likely bounce back as demand from central banks rebound.