- A combination of factors triggers some selling around gold on Friday.
- Risk appetite and the rally in US bond yields weigh on the XAU / USD.
- A weak USD price action could lend some support to the yellow metal.
After failing to conquer the $ 1,800 level on Thursday, gold has seen some selling on the last day of the week and has broken three consecutive days of winning streak to nearly one-month highs. The intraday pullback extended through the first half of the European session and dragged the XAU / USD to fresh daily lows, around the region of $ 1,781-80 in the last hour. The predominant risk appetite, as represented a positive tone around the stock markets, has been seen as a key factor that has acted as a headwind for the safe-haven precious metal.
In addition to this, a solid rally in US Treasury yields and the prospects for an early tightening of monetary policy by the Fed have weighed further on gold. Minutes from the last FOMC meeting released on Wednesday revealed that the Fed remains on track to begin reversing its massive pandemic-era stimulus by the end of 2021. Markets have also begun pricing in the possibility of an interest rate hike in 2022 amid concerns that the recent widespread rebound in commodity prices will fuel inflation. That said, a combination of factors warrants some caution before confirming that the XAU / USD has set a high in the near term.
Gold, which is considered a hedge against inflation, should benefit from growing market fears of a faster-than-expected rise in inflationary pressure. This comes amid signs of a slowdown in the global economic recovery, which have been fueling concerns about a return to stagflation and should further extend some support to the safe-haven XAU / USD. Apart of this, a subdued US dollar price action could further prevent traders from opening aggressive bearish positions around the dollar-denominated yellow metal and limit the decline, at least for now.
Market participants are now looking forward to the US economic calendar, featuring the monthly retail sales release, the Empire State Manufacturing Index and the preliminary Michigan consumer sentiment index. This, along with US bond yields and a speech scheduled by New York Federal Reserve Chairman John Williams, will influence dollar price dynamics later in the American session. Traders could continue to take cues from the broader market risk sentiment to seize some short-term opportunities around gold.
Technical perspectives of the XAU / USD
From current levels, any subsequent decline is likely to find decent support near the region of 1.775-73$. Sustained weakness below could spark some technical selling and drag spot prices toward static support at 1.750$. A convincing breakout of that region will turn the bias in favor of the bears and make XAU / USD vulnerable to retesting the September monthly lows, around the zone of 1.722-21$. On the other hand, the bulls are likely to expect sustained force above the round level of 1.800$ before opening new positions. Gold could further accelerate the momentum towards the intermediate hurdle of 1.816-18$ before finally targeting the resistance zone in 1.832-34$.
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