• Gold witnessed an intraday short-covering from a two-and-half-year low touched on Wednesday.
  • A sharp pullback in the US bond yields prompted aggressive USD profit-taking and offered support.
  • The prospects for more aggressive central banks, the risk-on mood kept a lid on any further gains.

Gold staged a solid recovery from its lowest level since April 2020 touched earlier on Wednesday and posted gains for the second day. The Bank of England's move to buy long-term bonds to stabilize the market for gilts triggered an intraday slump in the US Treasury bond yields. The yield on the benchmark 10-year US government bond retreated sharply after hitting the 4.0% threshold for the first time in nearly 15 years. This, in turn, prompted aggressive US dollar long-unwinding trade, which, in turn, was seen as a key factor that provided a solid lift for the dollar-denominated commodity.

The XAU/USD recorded the biggest one-day gain in two months and touched a fresh weekly high, though bulls struggled to capitalize on the relief rally. The overnight solid bounce in the US equity markets acted as a headwind for the safe-haven precious metal. Adding to this, the prospects for a more aggressive policy tightening by global central banks, including the Federal Reserve, contributed to keeping a lid on the non-yielding yellow metal. A slew of Fed officials reaffirmed this week that the US central bank would continue to hike interest rates faster to combat stubbornly high inflation.

Furthermore, the emergence of some USD dip-buying prompts fresh selling around gold during the Asian session on Thursday. The XAU/USD retreats to the $1,650 area as market participants now look forward to the US macro data for a fresh impetus. The US economic docket features the release of the final Q2 GDP print and the usual Weekly Initial Jobless Claims. This, along with speeches by influential FOMC members and the US bond yields, will drive the USD demand and provide some impetus to the commodity. Traders will take cues from the broader market risk sentiment to grab short-term opportunities around the metal.

Technical Outlook

From a technical perspective, the overnight recovery stalls near the $1,662 area, which coincides with the 38.2% Fibonacci retracement level of the recent fall from the monthly peak. The said barrier also represents a short-term trading range support breakpoint and should now act as a pivotal point for gold. A sustained strength beyond could trigger a fresh bout of a short-covering move and lift spot prices to the $1,676-$1,678 supply zone. The latter comprises 50% Fibo. level and the 100-period SMA on the 4-hour chart, which if cleared decisively will suggest that the XAU/USD has formed a near-term bottom. This, in turn, will set the stage for a further near-term appreciating move and allow bulls to aim back to reclaim the $1,700 round-figure mark.

On the flip side, the 23.6% Fibo. level, around the $1,642 area, now seems to protect the immediate downside. Any subsequent decline might continue to find some support near the $1,620-$1,615 region, or the YTD low. A convincing break below will be seen as a fresh trigger for bearish traders and drag gold towards the $1,600-$1,590 area. Some follow-through selling should pave the way for an extension of the downward trajectory towards the $1,567-$1,565 intermediate support en route to the $1,530-$1,528 region and the $1,500 psychological mark.

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