Crucial Support for Gold at $1,815 Violated – A Selling Bias Dominates
Arslan Butt • 2 min read
Gold closed at $1,814.10, after placing a high of $1,822.25, and a low of $1,804.75. Gold reversed its course on Tuesday, falling to it lowest level in six days, because of the stronger US dollar. The US Treasury Yields and the dollar strengthened after investors turned their attention to next week’s Federal Reserve policy meeting, hoping to get more signals about the timeline for a rate hike. The benchmark US Treasury Yield, on a 10-year note, reached its highest level in two years, at 1.88%, and the US Dollar Index, which measures the value of the greenback against six major currencies, also rose, topping its highest level in one week, at 95.83.
Gold is considered an inflationary hedge, and it tends to decline in the event of a rate hike, because it increases the opportunity cost of holding non-interest-bearing bullion. The hopes that the Fed will hike interest rates throughout this year will keep the US Treasury Yields higher for the year, limiting the upside for gold. Rising inflation will keep the precious metal supported.
Outlook on economic events
On the data front, at 18:30 GMT, the Empire State Manufacturing Index dropped to -0.7, against the expected 25.0 and weighed heavily on the US dollar. At 20:00 GMT, the NAHB Housing Market Index fell to 83, against the anticipated 84, also weighing on the US dollar. Despite the unfavorable macroeconomic data release, the US dollar remained positive, putting downward pressure on the precious metal.
On Tuesday, the World Health Organization (WHO) warned that the pandemic would not end with the Omicron variant, as there were high levels of infections everywhere around the world, and it was very likely that a new variant would emerge as the virus continues to mutate. According to the WHO’s COVID-19 technical head, Maria Van Kerkhove, over the past week, new infections have increased by 20% globally, with a total of about 19 million cases being reported. These comments by the WHO limited the losses in gold on Tuesday.
The coronavirus is spreading at a faster pace worldwide. Japan is experiencing its sixth wave of the pandemic, and its government is considering placing many areas under a COVID-19 quasi-state of emergency. In China, the number of coronavirus cases has reached the highest level since the pandemic began in March 2020. Beijing faced a severe outbreak just three weeks before hosting the Winter Olympics, and now the government has decided to cancel plans to sell tickets to the public for the Olympics, as part of strict virus control measures. The escalation in coronavirus woes worldwide could provide some support to the declining prices of gold, due to its safe-haven status.
Gold (XAU/USD) Technical Outlook
The precious metal, gold, is trading sideways, holding within a broad trading range of 1,815 to 1,799. Previously, the precious metal had already violated the upward channel, and a solid support level at 1,815. The formation of candles below 1,815 puts strong selling pressure on the yellow metal.
Daily Technical Levels
Pivot Point: 1,813.70
On the lower side, immediate support for gold prevails at the 1,799 level. A continued downtrend could extend the selling bias until the next support level of 1,787. On the higher side, a surge in demand could slice through the 1,815 resistance level, to lead the gold price towards 1,822 or 1,831. Good luck!