- A combination of factors helps gold regain positive traction on Wednesday.
- Expectations of an early tightening of monetary policies by major central banks should limit gains.
- Inflation fears should act like a tailwind and attract new purchases on any pullback.
The price of oro (XAU / USD) has achieved some positive traction on Wednesday and has regained a portion of the previous day’s retracement drop from the highest level since June. The figures of UK consumer inflation released today add to concerns about continued price increases. This, coupled with cautious market sentiment, benefited the safe-haven precious metal’s appeal as a hedge against inflation. Apart of this, the intraday decline of the US dollarFrom a 16-month high, it provided a modest rise in dollar-denominated gold prices. That being said, expectations of an early tightening of monetary policies by the main central banks they could act as a headwind for yellow metal gains and limit gains, at least for now.
Markets have been betting on another rate hike by the Reserve Bank of New Zealand (RBNZ) later this month. In addition, Upbeat UK employment details on Tuesday and UK CPI figure ensured an imminent rate hike by the Bank of England on Wednesday in December. The investors They also seem convinced that the Fed would be forced to adopt a more aggressive policy response. to contain stubbornly high inflation. Upbeat U.S. retail sales data on Tuesday reaffirmed the speculation for an eventual Fed rate hike for July 2022. Additionally, Fed fund futures indicate a high probability of another rate hike for November, evidenced by the previous day’s rally in US Treasury yields.
However, so far, gold has managed to maintain its intraday gains and is moving higher in the region of daily highs, around the $ 1,865 level during the American session on Wednesday.
For the remainder of the session, investors will take cues from scheduled speeches from influential members of the FOMC. This, along with US bond yields, will drive demand around the dollar and provide some boost to the precious metal. Aside from this, the broader market risk sentiment could further help investors seize some short-term opportunities around XAU / USD.
Daily chart gold
Gold technical perspective
From a technical perspective, the fall of the previous day validated the downtrend line resistance which runs from August 2020. The aforementioned barrier, currently, around the area of 1.870$, should act as a key turning point and help determine the short-term trajectory for gold prices. A convincing breakout to the upside, which would lead to a subsequent move past the level of 1.877$, the previous day’s high, would be seen as a new trigger for the bulls. This, in turn, should pave the way for a movement towards recovery of the level of 1.900$ for the first time since June. Momentum could further extend towards the next relevant obstacle near the resistance zone of 1.910-12$.
On the other hand, the region of 1.850-48$ now it seems to have emerged as a strong immediate support. Some continuation selling has the potential to drag gold toward the strong resistance break point test of 1.834-32$, now converted to support. The corrective decline, however, could still be seen as a buying opportunity and remain limited.
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