Gold Gearing for Lift-off to $1,833 – All Eyes on US Inflation Figures
Gold prices closed at $1,820.30,after setting a high of $1,822.95, and a low of $1,801.10. Gold continued its bullish momentum and surged for a third consecutive day on Tuesday, amid the weakness of the US dollar. The US Dollar Index, which measures the greenback’s value against a basket of six major currencies, dropped to 95.58 on Tuesday. The US Treasury yield on the benchmark 10-year note fell on Tuesday, remaining lower at 1.73%. The weak dollar and lower Treasury yields were behind the rising prices of the precious metal for the day.
On the data front, at 15:50 GMT, the NFIB Small Business Index came in. It remained flat, in line with expectations of 98.9. The IBD/TIPP Economic Optimism came in at 20:00 GMT, showing a drop to 44.7, compared to a projected 50.2, which weighed on the US dollar andh pushed gold further to the upside. According to Cleveland Fed President Loretta Mester, the Federal Reserve might need to increase interest rates at least three times in 2022 and start running down its balance sheet to respond to a tight labor market and persistently high inflation. Mester said that the final decisions on monetary policy would depend on the development of the coronavirus pandemic and the economic conditions. She also said that there was a need for Fed officials to recalibrate policy to address inflation, which was running well above the target level set by the US Federal Reserve.
Furthermore, on Tuesday, the President of the Kansas City Federal Reserve, Esther George, said that the US central bank should move soon to reduce its enormous $8.5 trillion pile of bond holdings, in order to reduce the pace of the highest US inflation in almost 40 years. She said that the Fed’s efforts to reduce inflation would be more effective if the bank drew down its holdings of long-term bonds, even as it gradually raised short-term interest rates.
Meanwhile, US Federal Reserve Chair, Jerome Powell, declared that the US economy was healthy enough and in need of a tighter monetary policy. During his re-nomination hearing before the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill, Powell said that he expects a series of rate hikes this year, along with the reduction of balance sheet assets.
The two Fed officials, as well as Powell’s support for raising interest rates as early as March and supporting the demand for the Central Bank to wind down its bloated balance sheet sooner rather than later, should have pushed the dollar higher, but the market turned red, and the US dollar came under pressure, ultimately pushing gold higher.
The US investors were probably taking positions ahead of the US inflation data, which is due on Wednesday, and mostly ignored the comments by Fed officials on Tuesday. However, this cautious behavior by US investors added more weight to the dollar and supported gold prices.
Gold (XAU/USD) – Technical Outlook
The precious metal, gold, is trading with a strong bullish bias at 1,819, having recovered above the $1,815 resistance level, which is now acting as a support for gold. Further to the upside, the next resistance remains at 1,824, and a break above this could lead the gold price towards the 1,833 level.
Daily Technical Levels
Support Resistance
1,806.61 1,828.46
1,792.93 1,836.63
1,784.76 1,850.31
Pivot Point: 1,814.78
On the lower side, the support is holding at around 1,815, and a break below this level could extend the selling trend until the 1,804 level. Good luck!
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