Gold Steady above the Key Support at $1,815 – A Quick Trade Plan
Gold closed at $1,819.05, after setting a high of $1,822.90, and a low of $1,812.25. Despite the rising strength of the US dollar and steady US Treasury yields, gold found some support on Monday and reversed its bearish trend of the previous three days. The hawkish signals from the US Federal Reserve strengthened the US dollar, which further capped any gains in the precious metal. Markets were also pricing in the sooner-than-projected balance sheet reduction by the Fed.
A stronger US dollar keeps gold under pressure
The benchmark US Treasury yields hit 1.81% last week, and they have remained close to that number, which is the highest level in two years. The US Dollar Index is also green, and it is hovering around the 95.26 level. Last week, Fed Chair Jerome Powell said that the US economy was ready to start a tighter monetary policy, and these comments have been supporting the dollar since then. Other Fed officials also indicated that the Federal Reserve was likely to hike interest rates in March 2022. The US Federal Reserve will meet on January 25 and 26 to hold its next policy meeting.
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Hawkish stance on policy by US policymakers
The precious metal, gold, may have gained strength on Monday, due to recent comments by Chinese President Xi Jinping. The president called for countries to move away from a cold-war mentality, saying that history has repeatedly shown that confrontation only invites disastrous repercussions.
These comments came amid the rising tensions between China and the US over Taiwan, coupled with escalating fears over a possible Russian incursion into Ukraine. He also called for stronger international coordination on fiscal and monetary policy, while policies in the West and China are pulling in different directions. He said that major economies should see the world as one community.
People’s Bank of China reduces borrowing costs
On Monday, Xi Jinping urged Western countries not to raise interest rates, warning that increasing interest rates could adversely affect economic and financial stability worldwide. This unprecedented intervention into global monetary policy by Jinping came one day after the Central Bank of China went in the opposite direction.
The People’s Bank of China reduced the borrowing costs for medium-term loans for the first time since April 2020. It was a surprising move for the whole market as countries across the globe were talking about increasing interest rates while China was moving in the opposite direction. As a result, Beijing was battling the property crunch and an economic slowdown driven by the Omicron variant.
The warning related to taking a U-turn in monetary policy caused concerns that serious spillovers will present challenges to economic and financial stability globally, and that developing countries will bear the burden of all this. This warning has led to increased safe-haven demand in the economy, pushing gold higher as a result.
Gold (XAU/USD) – A technical outlook
Support Resistance
1,813.24 1,823.89
1,807.42 1,828.72
1,802.59 1,834.54
Pivot Point: 1,818.07
On the lower side, the support is holding at around 1,815, and a break below this level could extend the selling trend until 1,802. Good luck!
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