XAU / USD is trading within tight ranges despite falling US dollar

• The XAU / USD is trading within a tight range of $ 1,885 – $ 1,893 despite a weaker USD.
• Gold traders continue to weigh contradictory issues of rising vaccine optimism versus worsening pandemic / more accommodative central banks.

Gold (XAU / USD) has traded within a tight intraday range of $ 1,885 – $ 1,893 on Tuesday. The precious metal currently lost around $ 2.5, or just over 0.1%.

XAU / USD pauses for breath after recent vaccine-related volatility, weighs fundamental issues

In the wake of significant bouts of volatility in recent days in response to vaccine updates from Pfizer / BioNtech last Monday and Moderna this Monday (the former saw the largest and most significant backlash, sending the precious metal below $ 1,900 since previously around $ 1,960), gold market participants appear to be taking a breather / biding their time, as they weigh up conflicting market narratives.

On the one hand, a much better-than-expected vaccine in recent days has raised hope that the pandemic can be controlled much earlier and more effectively than previously expected, ushering in an earlier-than-expected end of global economic blockades and restrictions. This line of thinking is widely accepted as behind gold’s slide from $ 1,960 to below the $ 1,900 seen on Monday.

However, mass immunization programs are still a few months away and the coming winter in the northern hemisphere presents a difficult battle against the virus, particularly in Europe and North America. Europe has already returned to the blockade and the United States is on the way (state by state). Therefore, economic data in these regions is expected to indicate a sharp slowdown in the coming months, and possibly even a return to economic contraction. Arguably such conditions should support safe haven gold.

Perhaps most important for gold is that it looks like more accommodations from the central bank are on the way. The ECB and its governing council member are preparing the markets for a big easing package in December, which will likely mean more favorable TLTROs, more QE (via the PEPP), and could even mean a small rate cut. Meanwhile, FOMC members have been increasingly concerned about the worsening of the COVID-19 outbreak in the US in recent weeks; Responding to today’s weekly US retail sales figures, FOMC member Bostic said that if Congress doesn’t offer fiscal relief, the Fed may have to reuse its own programs to get support where it’s needed. Meanwhile, FOMC Vice Chairman Clarida apparently raised the bar on eventual rate hikes by revealing that the Fed will also consider the participation rate when assessing whether the economy is at full employment before takeoff.

In a world where interest rates in developed economies are close to or below zero for a long time, gold should remain supported.

XAU / USD earnings capped by the DMA of $ 21,1,900

The XAU / USD continues to struggle as it approaches its 21-day moving average (DMA) at $ 1,898 and the psychological level of $ 1,900. These levels demonstrated solid resistance shortly after the market opened on Monday, with the precious metal setting weekly highs at $ 1,899. More immediately, however, to test these levels, gold would have to break the top of its recent intraday range which has seen limited gains at $ 1,893.

Above the round number of $ 1,900, there is further resistance in the form of a support / resistance uptrend that has been in play since early November, as well as the 50 DMA at $ 1,906.

On the downside, the most immediate resistance is, of course, the bottom of gold’s recent intraday range at $ 1,885. A break below that opens the door for a further drop to test a short-term uptrend linking the lows of November 9, 11, and 16 (roughly $ 1,850, $ 1,857 and $ 1,865 respectively), which should come into play about $ 1,870.

One hour chart

Technical levels