- Gold rallies to a 50% mean reversion level as the US dollar slides.
- Markets are looking to the Fed for direction, steering the greenback on Wednesday.
Update: Gold price is posting small losses so far this Thursday, snapping its two-day rebound, as the bulls face stiff resistance at the 200-Daily Moving Average (DMA) at $1826. The latest pullback in gold price can be attributed to a broad-based US dollar rebound, as the greenback licks its wounds following Fed Chair Jerome Powell-led blow. Powell, in his Congressional testimony on Wednesday, suggested that more US economic progress is needed before stimulus can be pared back.
Mixed Chinese GDP and activity numbers signaled that the V-shaped recovery in the world’s second-biggest economy could be plateauing, which offered extra legs to the dollar’s bounce amid increased haven demand. Attention now turns towards a fresh batch of US economic releases, including the Jobless Claims, regional manufacturing indices and Industrial Production, due for release later on Thursday for fresh trading impetus. Also, round 2 of Powell’s testimony will be eyed.
The price of gold is over 1% higher on Wednesday as the bulls take advantage of a weaker US dollar. XAU/USD has climbed from a low of $1,804.58 to a high of $1,829.88.
The greenback was lower despite the prior day's huge inflation data beat because the Federal Reserve Chair Jerome Powell told Congress the US economy was "still a ways off" from levels the central bank wanted to see before tapering its monetary support.
A day earlier, data showed June US inflation hit its highest in more than 13 years.
Additionally, in other data, the US producer prices also rose more than expected, posting their largest annual increase in more than 10-1/2 years.
Meanwhile, the US dollar remains below its three-month high, near 93.50, albeit capped below 92.80 daily resistance.
Moreover, markets are still not convinced that the Fed is wrong which is weighing on the greenback.
Fed Powell, at the beginning of his two-day testimony to Congress, said the Fed is firm in its belief that current price increases are tied to the economic reopening and are transitory.
''While the Fed's hawkish tilt may have removed the immediate impetus for speculators to buy gold, Chinese funds have been buying the dip, with physical purchases also supporting the yellow metal just as it flirted with its pandemic-era uptrend support,'' analysts at TD Securities argued.
''Meanwhile, gold's breakout from its recent trading range may be attracting some interest from technicians. However, we note that mean-reversion indicators have outperformed momentum signals over the past 60 days,'' the analysts added.
''Overall, while the benign positioning slate in precious metals continues to form a set-up that should eventually serve as a catalyst for higher prices, this breakout may only be pointing to skewed flows for the time being.'
Gold technical analysis
The price of gold has rallied beyond the 38.2% Fibonacci of the prior daily impulse to a 50% mean reversion as follows:
This could lead to a restest of the prior highs as the newly formed support structure prior to an onwards journey to the 61.8% Fibo just below $1,850.
Update: Gold (XAU/USD) picks up bids around $1,827, having jumped the most in six weeks, amid early Asian trading on Thursday.
The commodity buyers seem to struggle of late amid a light calendar and cautious sentiment ahead of the key China data dump in Asia. Also troubling the gold bulls could be the mixed updates over the coronavirus (COVID-19) and looming uncertainty over US President Joe Biden’s stimulus even as Democrats back the $3.5 trillion plan.
It’s worth noting that Fed Chairman Jerome Powell’s pushback to the tapering and rate hike concerns drowned the US dollar index, also fueling the gold prices. However, the strong Producer Price Index (PPI) for June kept reflation fears elevated, which in turn probed gold’s upside moves.
Amid these plays, stock futures remain indecisive and US Treasury yields seek fresh clues to consolidate the heaviest daily fall in over a week.
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