- The price of gold remains firmer so far this week, with all eyes on Wednesday’s Fed minutes.
- The US dollar rebounds amid souring sentiment as Treasury yields retreat.
- The daily close above 21-DMA could probably confirm the bullish reversal of XAUUSD.
The price of gold kept its bullish tone intact as it started a new week, hitting new nine-day highs at $1,885 before reversing sharply to end slightly higher at $1,854. The volatility surrounding gold price action from the previous week continued as momentum in US Treasury yields played its part.
Meanwhile, the US Dollar was crushed amid increased appetite for riskier assets, boosting XAUUSD in USD price. The impressive rally in EUR/USD, following hawkish remarks by ECB President Christine Lagarde, exacerbated the dollar’s pain. Earlier in the day, hopes for an easing of covid restrictions in China revived global growth optimism and aided the prolonged correction in the safe-haven greenback. The shiny metal took advantage of the weaker dollar and built on the previous week’s rally from its four-month low at $1,787. However, the risk-induced rebound in Wall Street index flows, as well as US Treasuries yields, gave gold sellers a wake-up call, driving rates off multi-day highs.
Also working in favor of the price of gold were renewed tensions between the US and China over Taiwan after US President Joe Biden said on Monday that the US could get involved. militarily to defend Taiwan. In response, the Chinese Foreign Ministry warned the United States not to underestimate its resolve in Taiwan. Geopolitical tensions have likely supported the traditional safety bet on gold.
As risk aversion returns to the market on Tuesday, reflecting a 0.80% drop in US stock futures, the precious metal remains in a consolidation phase above $1,850. The tech selloff on Wall Street on Monday night weighs on stock futures, undermining investor confidence. The return of risk aversion flows is contributing to a slight rebound in the US dollar and government bonds while dampening the return to yields.
Attention now turns to preliminary readings of the global manufacturing and services PMIs, which will provide further clues about a potential threat of recession. Data releases could have a significant impact on market sentiment and therefore on dollar and gold valuations. Additionally, markets will keep Wednesday’s FOMC minutes release in mind before placing aggressive bets on the yellow metal.
Gold Price Chart: Daily Chart
The short-term technical outlook for the metal remains more or less the same. Gold bulls challenge the daily moving average (DMA) hurdle of 21 at $1,857, having failed to hold above it.
A daily close above the latter is needed to confirm a bullish reversal, exposing further upside towards the slightly bullish 100-DMA at $1,885. Prior to that, the round figure of $1,870 may challenge bearish commitments.
The 14-day Relative Strength Index (RSI) is testing the middle line, currently sitting at 46.25, which justifies the bullish bias in the price.
On the other hand, immediate support is seen at the psychological level of $1,850. Sellers will then be looking for the horizontal flat 200-DMA at $1,839. Acceptance below the latter will trigger a further decline towards the $1,800 mark.