- Gold regains positive traction on Tuesday and rises to a new multi-week high.
- The dollar falls for the second consecutive day and offers support to the metal.
- Recession fear weighs on investor sentiment and benefits haven XAU/USD.
- Federal Reserve expectations could cap gains ahead of the US CPI release on Wednesday.
The Prayed It attracts some buying near the $1,783 area on Tuesday and rises to a five-week high during the early American session.
Bulls now expect sustained strength beyond $1,800 amid modest US dollar weakness, which tends to support dollar-denominated commodities. The New York Federal Reserve’s monthly survey showed on Monday that the US inflation outlook fell sharply in July. This, in turn, suggests that US inflation may have peaked last month, which turns out to be a key factor putting pressure on the dollar for the second day in a row.
Apart from this, the prevailing cautious mood offers additional support for gold, which is a safe haven. Market sentiment remains fragile amid growing concerns about a global economic slowdown. Furthermore, tensions between the US and China over Taiwan are keeping investors on their toes. This is evident in the generally weaker tone of equity markets, which further benefits the precious metal, although Fed expectations could limit gains.
Against the backdrop of recent statements from several FOMC officials, Friday’s upbeat US jobs data fueled speculation that the Fed would maintain its aggressive tightening policy. In fact, current market prices point to a 70% chance that the Fed will raise rates by 75 basis points at the September meeting. This, coupled with a nice rally in US Treasury yields, could limit gains for the non-yielding yellow metal.
Investors may also refrain from making aggressive bets and prefer to stay on the sidelines ahead of the crucial US consumer inflation figures due out on Wednesday. The US CPI report will provide further clues on the outlook for Fed policy, which should influence the dollar and gold prices in the near term. This, in turn, warrants caution before positioning for further gains amid the absence of market-relevant US economic data on Tuesday.
Technical levels
Source: Fx Street
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