- Gold gained some positive traction for the third successive day on Tuesday.
- Retreating US bond yields undermined the USD and remained supportive.
- A positive risk tone, hawkish Fed expectations might cap any further upside.
Gold built on the previous day’s positive move back above the $1,800 mark and gained some follow-through traction for the third successive day on Tuesday. The XAU/USD maintained its bid tone through the first half of the European session and climbed to a three-day high, around the $1,810 region in the last hour.
The ongoing retracement slide in the US Treasury bond yields prompted fresh US dollar selling, which, in turn, was seen as a key factor that benefitted the dollar-denominated commodity. Apart from this, the momentum could further be attributed to some technical buying on a sustained strength above the very important 200-day SMA.
That said, a generally positive tone around the equity markets acted as a headwind for the safe-haven gold. This, along with the prospects for a faster policy tightening by the Fed, might hold back traders from placing aggressive bullish bets around the non-yielding yellow metal. It is worth mentioning that the money markets have fully priced in the possibility of an eventual Fed lift-off in March and anticipate four rate hikes in 2022.
Hence, the market focus will remain glued to Fed Chair Jerome Powell’s confirmation hearing before the Senate Banking Committee later this Tuesday. In the prepared statement released on Monday, Powell reiterated that the Fed will use tools to support the economy/strong labour market and prevent higher inflation from becoming entrenched. Investors will look for fresh clues about the likely timing and the pace of policy normalisation.
Apart from this, Wednesday’s release of the latest US consumer inflation figures will draw market attention and play a key role in influencing the USD price dynamics. This makes it prudent to wait for a strong follow-through buying before confirming that gold has formed a near-term bottom and positioning for any further appreciating move.
From a technical perspective, gold, so far, has managed to defend an upward sloping trend-line extending from August 2021 swing lows. The mentioned support, around the $1,784-83 region, coinciding with Friday’s low, should act as a key pivotal point. A convincing break below will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.
On the flip side, any subsequent move beyond the $1,814-15 immediate hurdle is more likely to confront stiff resistance and remain capped near the $1,830-32 heavy supply zone. Some follow-through buying will negate any near-term bearish bias and lift gold prices to $1,849-50 intermediate resistance en-route the $1,869-70 region.
Gold daily chart
Levels to watch