- Gold found fresh supply on Friday and snapped a two-day winning streak.
- Resurgent demand for dollars and risk appetite turned out to be key bearish factors.
- The ongoing decline in US bond yields offered some support and helped limit further losses.
Gold struggled to capitalize on the strong gains posted in the last two trading sessions and saw some selling on the last day of the week. XAUUSD remained depressed during the first half of the European session and was last seen trading just below the $1,850 level. However, the bulls have managed to defend support at the technically important 200-day SMA, which warrants some caution before positioning for further losses.
The US dollar has been aggressively bid and has reversed some of this week’s pullback from two-decade highs amid Fed expectations. Investors seem convinced that the US central bank will maintain its aggressive tightening policy to combat the persistent inflation. Bets were bolstered by the Fed’s so-called dot plot, which showed the median projection for fed funds rates to be 3.4% in 2022 and 3.8% in 2023. This, in turn, helped the dollar snap a two-day losing streak to hit a one-week low, and dampened demand for dollar-denominated gold.
Aside from this, risk appetite – as evidenced by a generally positive tone around equity markets – further undermined the precious metal. However, the decline in US Treasury yields offered some support to gold. Investors were comforted by the fact that the Fed forecast that the interest rate would fall to 3.4% in 2024 and to 2.5% in the long term. This, in turn, pulled US bond yields away from two-decade highs hit earlier this week, which, coupled with rising recession fears, could help limit deeper losses for gold, at least for now.
Market participants are now expecting the US economic docket, with industrial production and capacity utilization rate, to give a further boost during the early North American session. Traders will be following indications from US bond yields, dollar price dynamics and broader market risk sentiment to take advantage of short-term opportunities around gold on the final day of the week.
Technical levels
Source: Fx Street
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