Risky recovery as US dollar soars; XAU/USD rejected at resistance
GOLD PRICE KEY POINTS:
- Gold prices fall on Wednesday, pressured by broad-based US dollar strength and a strong rebound in US Treasury yields
- Better-than-expected U.S. economic data confirms Fed remains on warmongering path
- XAU/USD pivots lower after failing to clear trendline resistance
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Bond yields have corrected lower in recent days on speculation that the Fed may adopt a less aggressive stance in the near future amid growing tensions in financial markets and fears of a global economic crash, paving the way for the US dollar to pull back from its multi-decade highs set late last month. This has supported gold and silver prices, triggering a strong rally over the past week.
However, the situation changed on Wednesday after the US currency managed to make a strong comeback, supported by a jump in Treasury rates in the wake of stronger than expected US economic data. Together, moves in FX and fixed income have taken the oxygen out of precious metals, causing a rapid bearish reversal, with XAU/USD down around 0.7% and XAG/USD down around 0.7%. more than 2.5% from its previous session close at the time of writing.
With an extremely tight US labor market and an economy holding up better than expected despite higher borrowing costs and other challenges, the Fed has no reason to deviate from its hawkish course, at least for now. . This means policymakers are likely to press ahead with their plans for further hikes in the coming months to ease demand pressures in their efforts to bring down inflation, which remains more than 4 times above the 2% target of the central bank.
In the short term, the scenario described above should keep the US dollar and real rates supported, creating a hostile environment for non-performing assets, especially if they are denominated in US dollars. Against this backdrop, the outlook for gold and silver is still bearish, suggesting that the two commodities remain vulnerable and could suffer further losses in the days and weeks ahead, especially if US economic data continues to surprise. on the upside (good numbers mean no central central bank).
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GOLD PRICE TECHNICAL ANALYSIS
After a strong rally in recent days, gold prices stalled at trendline resistance near $1,740/$1,745, falling from those levels as the bears regained control of the market. If the selling pressure builds over the next few sessions, initial support is seen at $1,700 followed by $1,680/$1,670. On the other hand, if the bearish momentum wanes and the buyers dip to trigger a reversal, the first high to watch appears at $1,740. If this barrier is breached, XAU/USD may continue to challenge the $1,780 area.
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GOLD TECHNICAL CHART (XAU/USD)
Gold Price Chart Prepared Using TradingView
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—Written by Diego Colman, Market Strategist for DailyFX