- XAU / USD is making strong gains after Monday’s choppy session.
- A daily close above $ 1,900 could open the door to additional gains.
- The 10-year US Treasury yield is losing more than 2% on the day.
The XAU/USD started the new week in a relatively calm fashion and closed practically unchanged on Monday. With US Treasury yields plummeting on Tuesday, gold regained its traction and hit its highest level since early January at $ 1,898. At the time of writing, the XAU / USD is trading at $ 1,897, up 0.8% on the day.
Gold continues to react to Treasury yields
US data revealed on Tuesday that the Conference Board consumer confidence index fell to 117.2 in May from 117.5 in April. This reading fell short of Reuters’ estimate of 119.2, but did not provoke a significant market reaction.
The Vice Chairman of the Federal Reserve, Richard Clarida said Tuesday that the April CPI consumer price index figure, which hit 4.2% a year, was a “very unpleasant surprise.”. Clarida also added that legislators could start discussing reducing purchases based on incoming data.
Meanwhile, commenting on the inflation outlook, “it is my opinion and the general opinion of the Fed that inflationary pressures are more likely to be transitory“said the vice president of supervision of the Federal Reserve, Randal Quarles.
Market participants largely ignored these comments and the benchmark 10-year US Treasury yield, which closed the previous three trading days in negative territory, extended its decline and was last seen. losing 2.3% on the day at 1,567%.
Gold technical outlook
On the daily chart, RSI indicator continues to climb slowly towards the 80 level, suggesting that the price of gold remains technically overbought. If buyers find it difficult to bring the price above the 1.900$ (psychological level), profit taking could trigger a short-term correction. Initial support could be seen at 1.885$ (static level) ahead of 1.872$ (minimum of May 25). Below this last level, the 200-day SMA forms significant dynamic support around 1.845$.
On the upside, additional gains are likely if gold makes a daily close above the 1.900$ and confirm that level as support. Higher, 1.930$ (static level) could be seen as the next target.
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