- Falling US bond yields weigh on the USD and help gold gain traction on Wednesday.
- Concerns about weakening global growth offer additional support for the yellow metal as a safe haven.
- Expectations of an aggressive Fed rate hike could cap gains ahead of the US CPI release.
The price of Gold (XAU/USD) has rebounded from its three-month low, around the $1,832 area, and for now it seems to have broken a two-day losing streak. XAU/USD has risen to a fresh daily high at the start of the European session and is now trading around the $1,850 level, up 0.67% on the day.
The Current pullback in US Treasury bond yields kept dollar bulls on the defensive, which in turn was seen as a key factor supporting the price of gold, denominated in dollars. Apart of this, concerns about weakening global growth further underpinned the precious metal as a safe havenamid strains in global supply chains resulting from China’s zero covid policy and the war in Ukraine.
However, a combination of factors prevented the bulls from opening aggressive positions and capped the precious metal’s gains. A positive tone around equity markets coupled with prospects for a more aggressive tightening of monetary policy by the Fedprevented investors from opening new bullish positions on gold, which does not produce returns.
The markets seem to be convinced that the Federal Reserve will have to take more drastic measures to control inflation and have been eyeing further rate hikes of up to 200 basis points for the rest of 2022. This should help limit dollar losses and help curb any runaway rise in gold prices. Investors may also be reluctant to open aggressive positions ahead of the latest US consumer inflation figures due later in the American session.
US CPI report could influence Fed tightening path, which in turn would influence the price dynamics of the dollar and could generate a new directional impulse to gold prices. Therefore, it will be prudent to wait for strong continuation buying before confirming that XAU/USD has formed a short-term bottom and positioning for any further upside.
gold technical levels
Source: Fx Street
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