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XAU/USD extends recovery from two-month lows, upside looks limited

  • Gold gains some positive traction on Wednesday, although it lacks continuation buying.
  • The dollar weakens near a one-week low amid a pullback in US bond yields.
  • Hopes for peace in Ukraine continue to support risk appetite and should cap gold price gains.

The price of Gold (XAU/USD) Extends Strong Rebound the previous day from the 50-day SMA support around the $1,890 region, a two-month low, and gains some positive traction at the start of the European session on Wednesday. XAU/USD maintains modest daily gains and trades just above the $1,925 levelup around 0.30% on the day. The US dollar weakened near a 1+ week low amid some continuation buying around the common currency, bolstered by the hopes of a breakthrough in the peace negotiations between Russia and Ukraine. Aside from this, the current pullback drop in US Treasury yields weighed on the USD and offered some support to the dollar-denominated price of gold.

That said, any significant recovery still seems elusive amid the latest optimism about a diplomatic solution to end the war in Ukraine. In fact, the Russian Defense Ministry has promised to reduce military activity in kyiv and Chernihiv in order to create conditions for dialogue. Also, Russia’s top negotiator Vladimir Medinsky said that there have been enough developments to hold a meeting between President Vladimir Putin and his Ukrainian counterpart Volodymyr Zelenskyy. What’s more, acceptance that the Fed would take a more aggressive stance and raise rates by 50 basis points in the next two monetary policy meetings it should help further to limit gains for non-yielding gold.

Investors may also refrain from opening aggressive positions ahead of important US macroeconomic data, beginning with the release of the ADP report and the final fourth quarter GDP release on Wednesday. This will be followed by the Fed’s preferred gauge of inflation, the core PCE price index on Thursday. The focus, however, will remain on Friday’s monthly jobs report, popularly known as the NFP. This will play a key role in influencing the short-term USD price dynamics. Aside from this, further developments around the Russian-Ukrainian war should help investors determine the next directional move for the price of gold.

gold technical outlook

From a technical perspective, the XAU/USD, so far, has been showing some resilience below the $1,900 level. The previous day’s bounce off technical support favors the bulls, although the lack of continued buying warrants some caution. Meanwhile, any further moves to the upside are more likely to face stiff resistance and remain capped near the breakout region. $1,944-$1,945. The next relevant obstacle is near the landing zone. $1,956-$1,957which if outperformed decisively will reaffirm a short-term positive bias for gold prices.

On the other hand, the area of $1,914 now it seems to defend the immediate fall. Any significant drop below could still find decent support near the $1,895-$1,890, which should act as strong support for gold. A convincing breakout of this region would set the stage for an extension of the recent sharp pullback from near the all-time high around the $2,070 region touched earlier this month.

gold daily chart

Gold additional technical levels

Source: Fx Street

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