During the early part of the European session on Tuesday, the price of gold (XAU/USD) experienced some downward pressure, relinquishing a significant portion of its overnight recovery gains from the $2,325-2,324 area, marking a multi-day low. This reversal was primarily attributed to the persistent upward trajectory of the US Dollar (USD), which surged to its highest level since November. Market expectations of a delay in interest rate cuts by the Federal Reserve (Fed) amidst sticky inflation and a resilient US economy bolstered the dollar, thus dampening the appeal of the US Dollar-denominated commodity.
Investors remained apprehensive about the possibility of further escalation of geopolitical tensions in the Middle East, particularly in the aftermath of Iran’s attack on Israel over the weekend. Additionally, speculations that the Fed would maintain higher interest rates for an extended period tempered investors’ appetite for riskier assets, evident from the subdued tone surrounding equity markets. Consequently, these factors continued to act as tailwinds for the safe-haven gold price, although a significant corrective slide remained elusive.
Traders turned their attention to upcoming US macroeconomic data releases and speeches by influential Federal Open Market Committee (FOMC) members, including Fed Chair Jerome Powell, in search of short-term trading opportunities.
Market Dynamics and Technical Analysis
The fragile global risk sentiment, exacerbated by the worsening Middle East crisis and expectations of prolonged higher interest rates by the Federal Reserve, provided support for the gold price. Investors adjusted their expectations regarding the timing of the first interest rate cut by the Fed, pushing back estimates to September from June, given concerns about persistent inflation and the resilience of the US economy.
The sentiment was reinforced by stronger-than-expected US Retail Sales data released on Monday, indicating robust consumer spending that could bolster inflation in the coming months. Despite the rise in the yield on the benchmark 10-year US government bond to its highest level since November, the upside was limited by the disappointing release of the Empire State Manufacturing Index.
The ongoing upward trajectory of the US Dollar, reaching over a five-month peak, might deter bullish sentiment and cap further gains for the XAU/USD pair. Tuesday’s US economic calendar includes housing market data and Industrial Production figures, alongside Fedspeak, which could offer direction to the non-yielding yellow metal.
From a technical standpoint, the validation of the $2,325-2,324 support zone during the overnight bounce is crucial. A decisive breach below this level could pave the way for a deeper corrective slide towards the $2,300 round figure, with further downside potential towards the $2,220 zone. Conversely, a breach above the $2,400 mark may signal renewed bullish momentum, targeting a retest of the record peak near the $2,431-2,432 region observed last Friday. However, with the Relative Strength Index (RSI) on the daily chart signaling overbought conditions, a pause near the all-time peak could precede a continuation of the recent uptrend.
