Gold Price Analysis: XAU/USD struggles for direction, stuck in a range around $1,880 level

Update: Gold seesawed between tepid gains/minor losses through the early North American session and was last seen trading in the neutral territory, around the $1,880 region. The US dollar remained on the defensive amid the ongoing decline in the US Treasury bond yields. This, in turn, was seen as a key factor that assisted the dollar-denominated commodity to quickly reverse an intraday dip to the $1,875 region.

The supporting factor, to a larger extent, was offset by an extended rally in the global equity markets. The upbeat market mood acted as a headwind for traditional safe-haven assets and capped any meaningful upside for the XAU/USD, at least for the time being. Even from a technical, gold, so far, has been struggling to make it through the $1,890 level, which should now act as a key pivotal point for short-term traders.

In the absence of any major market-moving economic releases from the US, market participants now look forward to a scheduled speech by the Fed Governor Lael Brainard’s speech for some impetus. This might influence market expectations about the Fed’s tapering plan and produce some meaningful trading opportunities around the non-yielding gold.

Update: Gold price is trading close to the daily highs of $1875, as the recovery in the US Treasury yields weigh. The US dollar attempts a bounce, tracking the renewed uptick in the yields. The greenback also benefits from a cautious risk tone experienced in the European session, which limits the advance in gold price.

However, growing concerns over rising inflation and fading Fed’s tapering bets could help cushion the downside in gold. A slew of Fedspeak due later on Monday could fuel some moves in gold price. Technically, gold bulls are likely to remain hopeful so long as Friday’s low of $1870 holds.

Gold prices have started out flat at the start of the week following a slightly bullish end to last week with prices closing on Friday 0.17% higher.

XAU/USD moved from a low of $1,870.30 to a high of $1,889.42, rising despite a bid in the greenback.

Gold recorded its third weekly gain as investors weigh up signs of rising inflation.

Lower bond yields have also helped boost investor appetite. Talk of tapering bond purchases also failed to illicit much concern. 

The dollar rose against a basket of currencies and was lifted by encouraging US manufacturing data. IHS Markit said its flash US manufacturing PMI increased to 61.5 in the first half of this month which was the best reading since October 2009.

The data followed a final reading of 60.5 in April, beating forecasts of 60.2. In other data, US existing home sales in April fell -2.7% to an annualised level of 5.85m (est. 6.07m). 

Nevertheless, the dollar remains under pressure in the wake of soft jobs data and remained on track for a weekly loss as traders' concerns about taper talk in US Federal Reserve minutes moderated.

DXY is trading at the lowest level since February 25 and is on track to test that day’s low near 89.683.  After that is the January 6 low near 89.209. 

''Ultimately, the threat of a taper looms large for gold, with angst also growing in rates markets as participants eye the massive Treasury supply on the horizon,'' analysts at TD Securities said, adding further:

''However, with investors 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.''

''Ultimately, our rates strategists also caution that it is still too early for taper talk, which suggests gold bugs are likely to benefit from the ongoing increase inflows for the time being.''

Gold technically analysis

As per the prior analysis, Chart of the Week: Gold bears lurking at monthly resistance,  the bulls have moved in on the monthly dynamic resistance within a descending channel and this may leave a bearish bias for the week ahead.

A 50% mean reversion comes in at $1,822 while a continuation to the upside would target $1,900.

Previous Updates

Update: Gold edged higher during the early part of the trading action on Monday, albeit lacked follow-through and remained capped below four-month tops touched last week. The US dollar struggled to capitalize on Friday's modest recovery from the lowest level since January amid the ongoing slide in the US Treasury bond yields. This was seen as a key factor that extended some support to the dollar-denominated commodity. That said, a combination of factors held bullish traders from placing aggressive bets and kept a lid on any strong gains for gold.

Investors increased their bets that the Fed could taper its emergency stimulus measures sooner rather than later amid concerns about runaway inflation. This, in turn, acted as a headwind for the non-yielding yellow metal. Apart from this, the underlying bullish sentiment in the global financial markets further collaborated towards capping the upside for the safe-haven gold. This makes it prudent to wait for a sustained move beyond the $1,890 level before positioning for an extension of the recent strong positive momentum.

Update: Gold price is off the highs but remains bid above $1880, as the bulls remain on track to clinch the critical $1900 barrier. The risk-off mode in the Asian equities combined with weaker US Treasury yields lend support to gold price. The US dollar also trades subdued amid a lack of strong catalysts, as mounting inflation fears on prospects of global economic recovery keep investors on the sidelines. Moreover, the weekend crash in cryptocurrencies also remains supportive of the upside in the traditional safe-haven gold. Attention now turns towards a barrage of speeches by the Fed officials due this Monday, as tapering bets are back on the table.

Read: Gold Price Analysis: XAU/USD keeps $1900 in sight while above key $1871 cap – Confluence Detector

Update: Gold (XAU/USD) refreshes intraday high above $1,886, up 0.26% intraday, during early Monday. In doing so, the gold traders keep reins for the eighth consecutive day amid fears of the Fed tapering, especially after Friday’s upbeat PMIs, as well as volatile cryptocurrencies.

Additionally favoring the rush to risk safety could be China’s crackdown on commodity trading, as well as the US comments suggesting the coronavirus outbreak emanated from the Wuhan laboratory. Furthermore, Japan’s extension to the virus-led emergency and fears of the Indian strain of the covid add to the market’s downbeat sentiment.

On the contrary, hopes of faster economic recovery and upbeat data support traders to consolidate the previous day’s losses.

In addition to the safe-haven bid, gold also cheers 0.30% intraday gains of S&P 500 Futures to attack the monthly high, also the highest since January 08.