- Gold reverses an intraday decline to levels below $1,700, although it struggles to gain significant traction.
- Modest dollar weakness offers some support; bets on more aggressive rate hikes from the Fed remain limited.
- Signs of stability in equity markets also suggest that the path of least resistance is to the downside.
The Prayed It shows resistance below the $1,700 mark for the second day in a row and attracts some downside buying on Wednesday. The XAU/USD maintains a slight positive bias throughout the first North American session, although it seems to be struggling to capitalize on the move and remains below the $1,710 level.
After the previous day’s strong rally inspired by the US CPI, the US dollar is lower and turns out to be a key factor offering some support to the dollar-denominated commodity. The modest decline in the dollar lacks an obvious fundamental catalyst and is more likely to remain limited amid expectations that the Fed will continue to raise interest rates at a faster pace to control inflation.
The implied odds of a 1% rate hike at the September FOMC meeting stand at 34%. In addition, markets have also been pricing in another 75 basis point rate hike in November. This, in turn, lifts the rate-sensitive two-year US government bond yield to levels last seen in November 2007, and the 10-year Treasury yield The benchmark remains stable near the annual maximum reached in June.
Prospects for more aggressive policy tightening by the Fed, coupled with elevated US Treasury yields, favor dollar bulls and deter underperforming gold. Apart from this, a modest recovery in risk sentiment – as shown by signs of stability in equity markets – helps to keep a ceiling on any significant upside for the haven precious metal.
Generally speaking, gold has oscillated in a known range for the last two weeks. Given that XAU/USD has, thus far, struggled to gain any significant traction, range bound price action could still be categorized as a bearish consolidation phase. This, in turn, suggests that the path of least resistance for the commodity is to the downside.
Technical levels
Source: Fx Street
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