Gold Price Forecast: XAU/USD bears hover over the edge of the abyss, preparing to take the leap

• Gold prices remain under pressure below a key dominant bearish trendline. 
• The US dollar could find support from a resurgence in US yields. 

The spot gold price is trading at $1,650.57  and flat on the day at the time of writing. The yellow metal has been trading within a $1,645 / $1,660.93 range on the day so far while the US dollar remains pressured towards the middle of the week which hit its lowest level since Oct. 6, making bullion cheaper for overseas buyers.

However, as the following technical analysis will show, DXY remains on the front side of a key trendline, although further weakness, from a technical standpoint below last week's lows, should serve to support the precious metal. US yields, in that regard, remain around 4% in the 10-year yields with a daily bullish structure which should serve to prop up the US dollar. The 2-year yield is pulling back slightly from the daily highs of 4.53%. This is weighing on the greenback this week and supporting gold as rising interest rates dim gold's appeal as they increase the opportunity cost of holding the non-yielding asset.

Slightly further afield, gold has also been subject to the UK's money markets and the shenanigans in UK politics this month. The UK government's decision to u-turn on vast unfunded fiscal stimulus seemed to boost investors' confidence and some stability is being priced back into the gilt market. The yield on Britain’s 10-year gilt stabilized around 3.9%, but it remains well below the 14-year high of 4.6% reached on October 12th.

The good news, however, came with the New Chancellor Jeremy Hunt saying on Monday that he was reversing almost all tax measures announced in the mini-budget, including cutting the basic rate of income tax from 20% to 19% from April next year. Traders also got the news that 

Meanwhile, traders also took note of the Bank of England announcing that sales of government bonds are set to go ahead as planned for November 1. This rebutted an article by the Financial Times that warned that another postponement was likely because of the turmoil in the money markets. While this is important news, the main driver for gold remains with the Federal Reserve. 

Its all about the Fed

''Inflation's increasing persistence is a constraint for the Fed, which suggests that a restrictive rates regime may persist for longer than historical precedents. In this context, gold prices are unlikely to rise with a deteriorating growth outlook until the Fed makes progress in the war on inflation,'' analysts at TD Securities explained. 

''For the time being, TD Securities has found that US wage growth trends are validating near-term household inflation expectations, but appear to have settled at levels that would sustain a CPI inflation rate of 5%-6% going forward, far removed from the 2.5% rate consistent with the Fed's inflation target. In turn, don't count on investors to grow their appetite in the yellow metal. Physical demand for bullion has remained elevated, but seasonal considerations suggest that this tailwind could soon fade following India's festive season.''

Gold and USD technical analysis

The price of gold is under pressure below the dominant trendline resistance following a retest that failed earlier in the week.  A move below $1,650 opens the risk of a significant move towards the recent lows of $1,615, as per the following daily chart:

Meanwhile, this will depend on the outcome of the US dollar:

The trendline support could be tested in the coming day (s) and if this holds, should the index move back above last week's lows, then gold would be respected to crumble as the greenback makes bullish headway from out of key demand area.