Gold Prices See Sharp Drop Below $2,400 Despite Dollar Weakness

Spot gold prices experienced a significant decline, dropping nearly $40, to fall below the $2,400 per ounce mark. This follows an initial surge to $2,432.03 per ounce at the beginning of the New York trading session on Wednesday, driven by expectations of a Federal Reserve rate cut in September.

However, profit-taking and rising U.S. bond yields reversed the gains. Gold ultimately closed down 0.51%, settling at $2,396.86 per ounce. The decline continued into the Asian session on Thursday, with prices reaching a low of $2,392.95 per ounce, nearly $40 below the overnight high.

FXStreet analyst Christian Borjon Valencia highlighted that the gold price initially surged due to a 100% probability prediction of a 25 basis point rate cut in September by the Fed, according to the "Fed Watch Tool." However, this optimism was short-lived as gold prices retracted below $2,400 per ounce, influenced by a two basis point increase in the US 10-year Treasury yield to 4.274%.

Kelvin Wong, senior market analyst at OANDA Asia Pacific, noted that fundamental factors are exerting pressure on gold prices, and technical indicators suggest further potential declines. Traders are now focusing on the upcoming release of U.S. Q2 GDP data and the latest Personal Consumption Expenditure (PCE) price index, which is a key inflation measure for the Federal Reserve.

According to Valencia, the Relative Strength Index (RSI) remains bullish but shows signs of flattening, indicating uncertainty among buyers and sellers. A daily close below $2,412 per ounce could lead to further selling pressure. A deeper correction is likely if gold prices fall below the July 22 low of $2,384 per ounce, with the next support level at the 50-day simple moving average (SMA) at $2,359 per ounce. If prices drop below the 100-day moving average of $2,315 per ounce, gold could fall further towards $2,300 per ounce.

Conversely, for gold to maintain a bullish trend, prices would need to break above Wednesday’s high of $2,430 per ounce. The next resistance levels would be at $2,450 per ounce, $2,483 per ounce, and ultimately aiming for the $2,500 per ounce mark.

At 08:35 GMT, spot gold was trading at $2,392.95 per ounce.