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Gold gave up much of its intraday gains and retreated to the lower end of its daily trading range during early North American trading hours. After soaring since late last week, US Treasury bond yields fell slightly on Wednesday. In fact, the benchmark 10-year US Treasury bond yield fell closer to the 1.50% threshold again. This, in turn, was seen as a key factor in providing some support to the unprofitable yellow metal. However, a prolongation of a strong US dollar rally acted as headwinds for dollar-denominated commodities, including gold.
The worsening energy crisis in China revived fears of a slowdown in the world’s second largest economy and favored the status of the greenback as a global reserve currency. This, together with the prospect of an imminent tightening of monetary policy by the Fed, resulted in the important USD index reaching its highest level since November 2020 and ending the program by mid-2022. In addition, the so-called dot plot indicated that that politics tended to hike rates in 2022.
This made a major contribution to offsetting the looming US debt ceiling and continued to support the strong bidding tone surrounding the greenback. That being said, the risk-on impulse – reflected in a solid recovery in equity markets – continued to help limit safe haven gold profits. The fundamentals appear to be heavily favored by bearish traders. Hence, any subsequent upward move can still be viewed as a selling opportunity and there is a risk that it will fizzle out pretty quickly. Market participants are now looking forward to comments from major central bank governors, including Fed Chairman Jerome Powell, at the ECB’s Central Banking Forum in Sintra for fresh impetus.
Technical outlook
Technically, the overnight swing lows around the $ 1,728 region could add some support to gold which, if breached, will set the stage for additional losses. The XAG / USD could then accelerate the slide further towards the USD 1,700 mark before finally falling to challenge the YTD lows around the USD 1,687-86 area.
On the flip side, immediate resistance is pinned near the $ 1,750-52 zone, above which a period of short coverage has the potential to lift gold towards the next relevant hurdle near the $ 1,775 region. This is followed by resistance near the USD 1,783-84 area. Persistent strength beyond the latter should allow the bulls to recapture the round $ 1,800 figure.
Levels to watch
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