Gold: The Road to Recovery, Gold prices have staged a modest recovery in recent trade,
retaking the $1750 per ounce level amid broad-based selling pressure in the US Dollar.
Topics
The Gold Rush
Rising US Treasury Bond Effect
Gold price technical outlook
The Gold Rush
The move comes as market participants brace for what is shaping up to be a critical day of trading
on Tuesday, with renewed optimism from China helping to support risk flows.
With safe-haven demand easing and the USD under pressure,
gold prices appear poised to continue their upward march in the near term.
However, any further gains may be limited by resistance around the $1760 level.
|For now, all eyes remain on developments in China and how they will impact global markets tomorrow.
The US Dollar has come under pressure as optimism grows in China that the country will soon be able to relax its zero-Covid policy.
After three days of lockdown-induced protests, Chinese equity markets have rebounded strongly on the expectation that the government will soon ease its restrictions. Global Times tweets have suggested that the government could do away with its stringent zero-Covid policy sooner than later, lifting risk sentiment and putting pressure on the US Dollar.
The S&P500 futures are up 0.36% so far today, reflecting the positive shift in market sentiment. With China moving closer to reopening its economy, investors are becoming increasingly optimistic about global growth prospects, and this is weighing on the safe haven US Dollar.
It’s worth noting that China on Tuesday reported a decline in new COVID-19 infections for Nov. 28, posting 38,645 cases, after a record daily high of 40,347 cases on the previous day. Reduced safe-haven demand for the US Dollar bodes well for the USD-sensitive gold price.\
Rising US Treasury Bond Effect
The US Treasury bond yields recovered sharply on Monday after the hawkish commentary from the United States Federal Reserve officials. The further recovery in Gold price could be capped by the buoyant tone seen around the US Treasury bond yields.
James Bullard, President of the Federal Reserve Bank of St. Louis, said that rates need to go higher to bring inflation down. New York Fed Bank President John Williams said that “I do think we’re going to need to keep the restrictive policy in place for some time; I would expect that to continue through at least next year.” Meanwhile, Richmond Fed President Thomas Barkin noted that “I’m very supportive of the path that is slower, probably longer and potentially higher.”
The Bullish remarks from the US Treasury officials lifted the bond yields and fuelled a solid comeback in the US Dollar. Gold price, therefore, closed Monday deep in the red near the $1,740 demand area. The move was in line with our previous forecast and now we expect further downside pressure on gold prices in the short term.
Gold price technical outlook
Gold prices failed to resist above $1,747 on Monday, which is the 23.6% Fibonacci Retracement (Fibo) level of the latest rally from the November 3 bottom at $1,617. The move lower also prompted gold price to settle the day below the rising (dashed) trendline support, then at $1,744.
Buyers found support once again near the $1,740 region though, triggering a recovery rally above the $1,750 level this Tuesday morning. In doing so gold price has recaptured both the 23.6% Fibo level and the rising trendline support-turned-resistance now at $1747 and$1749 respectively the next upside barrier is seen around the key figure mark at $1,760 Acceptance above the latter will be critically unleashing any additional upside toward $1,770
The 14-day Relative Strength Index (RSI) looks poised for further gains after already inching higher from just above the midline This combined with today’s early morning breakout above short-term resistance suggests we could see some more upside in gold prices over coming sessions However any retreat below minor support around $1,740 would negate the immediate bullish outlook.