Gold Price Analysis: XAU/USD consolidates below $1900, as USD eases amid risk-recovery

Update: Gold price is posting small gains, looking to reverse Wednesday’s corrective pullback to $1891. The US dollar stalls its advance and eases, as the risk sentiment recovers on fresh US-China trade optimism. The US Trade Representative Katherine Tai and China’s Vice-Premier Liu He had candid and constructive trade talks. S&P 500 futures pare losses to close in on 4,200.

Meanwhile, the US Treasury yields hold onto the higher levels, limiting the gains in gold price. The greenback rebounded alongside the yields after the Fed’s Vice Chair for Supervision Randal Quarles joined other officials in signaling that he is open to tapering talks. Next of relevance for gold traders remain a fresh batch of US data, including the Core PCE and Durable Goods, for fresh trading impetus.

At the press time, gold price is trading at $1896, marginally lower on the day, having reached fresh four-month highs at $1913 a day before.

Read: US Durable Goods Orders April Preview: Jobs should equal spending

The price of gold was lower on the day by 0.15% into the closing bell on Wall Street.

However, it should also be noted that the yellow metal staged a valiant attempt through the psychological $1,900 level for the first time since the start of the year. 

After two straight down days, the dollar moved higher against major currencies this week helped along by firmer US yields.

The dollar index DXY was up 0.42% by the close on Wall Street at 90.04, firming from near January's lows after a steady slide from the end of March. Benchmark yields on 10-year US Treasuries are also firming within the range 1.550% / 1.5810% range of the day advancing 1.30% higher to 1.5790% into the close.

For the day, there was a generalised absence of data releases and central bank speakers ahead of critical data on both Thursday and Friday. 
Markets were also focusing on month-end activity which can be known to see rallies correct and consolidate.

However, with a focus on the reflation theme in markets, analysts at ANZ Bank noted, ''probably the most important insight on Wednesday came from European Central Bank Executive Board director, Fabio Panetta, who said 'only a sustained increase in inflationary pressures, reflected in an upward trend in underlying inflation and bringing inflation and inflation expectations in line with our aim, could justify a reduction in our purchase'''.

Importantly, the analysts picked up on the point that ''Panetta indicated that he is in favour of maintaining elevated bond purchases which the ECB will discuss at its forthcoming policy meeting on 10 June.''

The statement is favourable to the greenback by default of what should be a bearish outlook for the euro, thus a potential weight on gold prices in the near term.

This also makes this Friday's most important release as an inflation measure watched closely by the US Federal Reserve in April's core PCE data.

If it is stronger than expected, yields could rise and power the dollar even higher. May's Chicago PMI will also be keenly watched by traders for a positive outcome for the greenback as it may reinforce the taper narrative.

 ''We see upside risks to both readings that will make it hard to justify a 10-year yield near 1.50%,'' the BBH analysts forecasted.  

Meanwhile, ''while the taper looms large for gold, it's still too early for talk of taper talk to dent markets,'' analysts at TD Securities argued. 

''However, with algorithmic short-covering now running out of steam, gold prices are lagging the move lower in real rates, highlighting the growing risk of a pullback.''

''With investors still sounding the alarm over inflation, institutional interest in the precious metals complex is likely to continue rising following months of outflows, providing an offsetting force against taper fears for the time being.''

Gold technical analysis

The price is headed for a bearish close on Wednesday for the day, but that by no means rules out prospects of another bullish extension. 

So long as the price holds above support, then the bulls are in control for the sessions ahead and into month-end.  

Previous Updates

Update: Gold (XAU/USD) fades bounce off $1,890.78 amid a quiet Asian session on Thursday. Upbeat market sentiment favored the gold buyers to attack January highs the previous day but the follow-on US dollar rebound, backed by the strong US Treasury yields, dragged the quote from $1,912.79.

While the Fed’s ability to convince markets of no tapering and sustained vaccinations seem to favor risk-on mood, also to gold prices, the recent challenges to the commodities from China, the world’s second-biggest user of gold, seemed to have weighed on the bullion. Also, the US dollar has been on a south-run since April-start and hence a corrective pullback is expected, which in turn could drag gold from multi-day tops.

For that matter, gold traders may closely observe today’s US Durable Goods Orders and the US Treasury yields for fresh impulse.