Gold Price Analysis: XAU/USD bounces off weekly lows, lacks follow-through buying

Update: Gold reversed an intraday dip to sub-$1,810 levels, or one-week lows and climbed to the top end of its daily trading range during the early North American session. The commodity was last seen trading around the $1,820 region, up 0.20% for the day.

The US dollar struggled to preserve its intraday gains to weekly tops, instead witnessed some selling at higher levels amid a softer tone surrounding the US Treasury bond yields. This, in turn, was seen as a key factor that extended some support to the non-yielding yellow metal. However, a positive turnaround in the US equity futures acted as a headwind for traditional safe-haven assets and kept a lid on any further gains for gold.

On the US economic data front, the Initial Weekly Jobless Claims fell more than anticipated to 473K during the week ended May 7 as against the previous week's upwardly revised reading of 507K. Separately, the US Producer Price Index rose 0.6% in April and the yearly rate surged to 6.2%, beating market expectations. The mostly upbeat data, however, did little to impress the USD bulls or provide any meaningful impetus to dollar-denominated commodities, including gold.

Update: Gold traded with a positive bias through the early European session and was last seen hovering near the top end of its intraday trading range, just below the $1,820 level.

A combination of factors assisted the precious metal to regain positive traction and recover a part of the previous day's US CPI-inspired losses to weekly lows. A modest pullback in the US Treasury bond yields held the US dollar bulls from placing aggressive bets, which, in turn, extended some support to the dollar-denominated commodity. Apart from this, the prevalent risk-off mood – as depicted by an extended selloff in the global equity markets – further benefitted the traditional safe-haven gold.

Meanwhile, a surge in the US consumer prices fueled speculations about an earlier than anticipated tightening by the Federal Reserve. This was seen as a key factor that kept a lid on any meaningful upside for the non-yielding yellow metal. Hence, it will be prudent to wait for some strong follow-through buying around gold before traders positioning for the resumption of the recent appreciating move witnessed over the past one-and-half-month or so.

Update: Gold retreats above $1,800, offered around $1,817 ahead of Thursday’s European session, as market sentiment dwindles following the US Consumer Price Index (CPI)-led debacle.

Gold prices dropped the most in 2.5 months the previous day amid reflation fears while the latest weakness could be traced to the US 10-year Treasury yields, down 1.8 basis points (bps) to 1.68% by the press time. The risk barometer, Treasury yields jumped the most in two months on Wednesday before traders reassessed fears emanating from the coronavirus (COVID-19) variants and geopolitics. The same put a bid under the US dollar and weighs on gold.

Given the fewer catalysts ahead of the North American session, the pick-up in the US dollar index (DXY) could last longer and may extend if Jobless Claims, as well as Producer Price Index (PPI), stay firm. As a result, gold prices may downbeat below $1,840 hudle.

Gold drops back to $1,814.75, following the biggest daily losses since March-end, during Thursday’s Asian session. In doing so, the gold traders fail to keep the late Wednesday’s corrective pullback from $1,813.36 as markets haven’t forgone the reflation fears propelled by the previous day’s US Consumer Price Index (CPI) data.

US CPI is a challenge to both, Fed and Biden…

With the highest annual US inflation since 2008, double the Federal Reserve’s (Fed) 2.0% target, global markets reaffirm the fears that the easy money has a limited future going forward. The same triggered a risk-off mood and backed the US dollar index (DXY) run-up, not to forget dragging down the Gold prices on Wednesday.

Following the data, Fed's Vice Chair Richard Clarida and Atlanta Federal Reserve President Raphael Bostic tried to placate bears but failed. Also, CNN broke the news of a leading Democratic economist Larry Summers warning the White House on the ‘overheating’ issue, which in turn tests the latest mildly bid market mood and recalls the gold sellers.

Not only the reflation fears but the ongoing tussles between Israel and Palestine also weigh on the trading sentiment and gold. In this regard, Reuters came out with a piece of news citing the US sending an envoy to placate conditions in the Middle East after Israel killed Hamas commander.

Against this backdrop, Wall Street benchmarks dropped around 2.0 each, marking the third day of losses on Wednesday. Further, the US 10-year Treasury yields jumped the most in two months. However, S&P 500 Futures print mild gains amid a light calendar in Asia.

Looking forward, gold traders should wait for more clues that challenge the easy money policies. In doing so, today’s US Jobless Claims and Producer Price Index, followed by Friday’s US Retail Sales, will be the key as any further heating of data will disappoint the Fed more, backing the gold sellers.

Technical analysis

Having justified the early-week pullback from 200-day SMA on Wednesday, gold’s latest corrective pullback battles 50% Fibonacci retracement of January-March downside, around $1,820. Given the downward sloping Momentum line, coupled with the bearish fundamental, gold sellers are likely to keep the reins.

Though, lows marked during late April and early May offer immediate support to gold prices surrounding the $1,800 threshold, below the $1,813 trigger for the fresh downside.

It should, however, be noted that the uptrend can’t be ruled out unless the gold buyers defend an ascending support line from March 31, near $1,793.

Meanwhile, a clear break above the 200-day SMA level near $1,848 needs validation from 61.8% Fibonacci retracement figures close to $1,851-52 before challenging gold’s late January tops near $1,875.

Gold daily chart

Trend: Further weakness expected