- A combination of factors assisted gold to gain some positive traction on Friday.
- The risk-off mood and retreating US bond yields acted as a tailwind for the precious metal.
- Hawkish Fed expectations underpinned the USD and capped any further gains.
Gold attracted some dip-buying on the last day of the week and for now, seems to have stalled the previous day's retracement slide from a two-month high. Investors turned risk-averse amid concerns that rising borrowing costs could dent the earnings outlook for companies. This was evident from a weaker trading sentiment around the equity markets, which, in turn, acted as a tailwind for the safe-haven precious metal.
Meanwhile, the flight to safety dragged the US Treasury bond yields further away from the multi-year high and extended additional support to the non-yielding yellow metal. It is worth recalling that the yield on the benchmark 10-year US government bond shot to the highest level since January 2020 on Wednesday amid expectations for a faster policy tightening by the Fed. Investors seem convinced that the Fed would begin raising interest rates in March to combat stubbornly high inflation and have been pricing in the possibility of a total of four rate hikes in 2022.
The market bets were reaffirmed by last week's data, which showed that the headline US CPI surged to the highest level since June 1982 and core CPI registered the biggest advance since 1991. The prospects for an eventual Fed lift-off continued underpinning the US dollar and should hold back traders from placing aggressive bullish bets around the dollar-denominated commodity. Investors might also prefer to move on the sidelines ahead of the upcoming FOMC meeting on January 25-26, warranting caution before positioning for any further appreciating move.
The outcome will be looked upon for clearer signals about the likely timing when the Fed will commence its rate hike cycle. This will influence the near-term USD price dynamics and provide a fresh directional impetus to the XAU/USD. In the meantime, gold is more likely to consolidate in a range amid absent relevant market moving economic releases from the US. That said, the broader market risk sentiment might still produce some short-term trading opportunities around the metal, which remains on track to post gains for the second successive week.
From a technical perspective, the overnight break through the $1,830-$1,832 resistance zone might have already set the stage for additional gains. Hence, a subsequent strength towards testing a downward-sloping trend-line extending from June 2021 swing high, currently around the $1,860 region, remains a distinct possibility. Some follow-through buying will be seen as a fresh trigger for bullish traders and pave the way for an extension of the recent move up witnessed over the past one month or so.
On the flip side, any pullback towards the $1,832-$1,830 resistance breakpoint might now be seen as a buying opportunity. A convincing break below might prompt some technical selling and accelerate the fall towards the $1,812 horizontal zone. The next relevant support is pegged near the very important 200-day SMA, currently around the $1,804 region, ahead of the $1,800 round figure. This is closely followed by an upward sloping trend-line extending from August 2021 swing low, currently around the $1,790 region. Failure to defend the mentioned support levels will negate the near-term positive bias and turn gold prices vulnerable.
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