Gold Price Faces Challenges Despite Rebound: Bearish US Dollar Offers Support
Gold price struggles to take advantage of yesterday's decent recovery from the $1,925-$1,924 area, which marked its lowest level since March
GOLD price struggles to take advantage of yesterday’s decent recovery from the $1,925-$1,924 area, which marked its lowest level since March 17. In Asian trading on Friday, the XAU/USD remains confined within a narrow trading range, hovering just above the $1,955 level.
Bearish sentiment surrounding the US Dollar provides support to the GOLD price, as the currency struggles to rebound and lingers near a five-week low. Expectations that the Federal Reserve is nearing the end of its year-long rate-hiking cycle have led to a decline in US Treasury bond yields. This defensive stance on the US Dollar acts as a favorable factor for Gold, which is denominated in USD. However, significant upside potential is limited due to a more hawkish outlook from major central banks.
The Reserve Bank of Australia and the Bank of Canada recently surprised markets with a 25 basis point rate hike, indicating continued efforts to combat inflation. The Federal Reserve also signaled the possibility of further rate increases, potentially up to 50 basis points, by the end of the year.
The European Central Bank has raised rates by 25 basis points to their highest level in 22 years, with indications of further tightening to achieve the 2% inflation target in the Eurozone.
The Bank of England is also expected to adopt a more aggressive approach to contain persistently high inflation, which stood at an 8.7% year-on-year rate in April, well above the central bank’s 2% target.
This cautious stance may discourage traders from placing aggressive bullish bets on GOLD , a non-yielding asset. Furthermore, the positive sentiment surrounding equity markets acts as an additional factor capping gains for safe-haven assets like XAU/USD, at least for the time being.
Given these fundamental factors, it is prudent to wait for strong buying momentum before confirming a near-term bottom for the Gold price. In the absence of significant economic releases from the United States, market participants will look for cues from Fed Governor Christopher Waller’s public appearance, as well as US bond yields, which may impact the US Dollar. The overall risk sentiment in the market could also provide some direction for XAU/USD.
Gold Technical Outlook
From a technical perspective, the repeated failures to sustain bearish momentum below the 100-day Simple Moving Average warrant caution before expecting further losses. Any potential upside movement will likely encounter resistance around the $1,962-$1,964 region, followed by the $1,970-$1,972 supply zone. Breaking above these levels could pave the way for a reclamation of the psychological $2,000 mark and potentially higher towards the $2,010-$2,012 resistance area.
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