Gold Steady at $1,834: Upward Trendline to Drive More Upside
Gold prices closed at $1833.30 after hitting a high of $1836.95 and a low of $1825.55. XAU/USD extended its bullish streak for the fourth
Gold prices closed at $1833.30 after hitting a high of $1836.95 and a low of $1825.55. GOLD extended its bullish streak for the fourth session, reaching its highest level since January 26, despite falling prices for the US dollar and US Treasury yields. The yields on the benchmark 10-year note in the United States fell in the session to 1.90%, adding to the gains in precious metals. On Wednesday, Treasury yields retreated from 27-month highs after the department sold new 10-year notes to strong demand.
The DXY, also known as the US Dollar Index, which measures the greenback’s value against a basket of six major currencies, dropped to 95.3 level on Wednesday. US investors were cautious ahead of the release of the CPI report, which is due on Thursday. It kept the US dollar’s momentum softer for the day and seemed to help gold remain green for the day.
All eyes are on the upcoming release of the US Consumer Price Index for January, which will provide more clarity on the Federal Reserve’s rate hike trajectory. Markets are expecting a robust inflation reading for the first month of 2022, which would favor safe-haven metal due to its status as a hedge against inflation. However, the bets that the Fed might increase interest rates this year have already been weighing down on non-yielding precious metals.
On Wednesday, Atlanta Fed President Raphael Bostic stated that the US economy might be nearing a low-inflation turning point, though he added that interest rates would rise faster this year. He was hopeful that there would be a decline in inflation figures on Thursday. This year, Bostic was leaning towards four rate hikes, while the market was expecting only three rate hikes. The initial rate hike is expected to be announced in March this year.
Similarly, Cleveland Federal Reserve President Loretta Mester has also laid out an aggressive plan for reducing the money supply this year. She said that the Fed will be ready to increase interest rates at any meeting and should reduce its holdings of mortgage-backed securities. She said that each meeting would be in play as the Fed would assess the conditions, risks, and the evolution of the economy before removing the accommodation. She also said that the Fed should make at least four increases in rates and said that the March hike would not be more than 25 bps.
Mester further said that inflation could ease to above 2% this year due to some positive developments, including reducing some of the economic support provided during the coronavirus pandemic and some of the resolved supply constraints. Fed officials signaled that the central bank would begin raising interest rates next month to combat high inflation, which came as no surprise to the market. Hence, the US dollar remained under pressure ahead of the US CPI report and pushed gold higher. On the data front, at 20:00 GMT, the Final Wholesale Inventories surged to 2.2% against the forecast 2.1% and weighed on the US dollar, which added further gains in the prices of precious metals.
Gold (XAU/USD) Technical Outlook
On Thursday, XAU/USD broke through the central line of the channel at $1,830, exposing the swing high for July 2021 at $1,834. Nonetheless, that price level has been unsuccessfully tested four times, but it was broken by the end of November 2021 when XAU/USD reached $1,877 before retracing its gains towards $1753.
The first level of resistance for XAU/USD would be $1,834. A daily close above $1,853 would reveal the January 25 high, followed by a nine-month-old downslope trendline around $1,860.
On the other hand, the trend line around $1,820 would be the first support for XAU/USD. A breach of the latter would expose the confluence of the 50 and 200-day moving averages around $1,806, followed by the 100-day moving average at $1,798. Good luck!
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