• Gold remains in bearish territory but is attempting to recover from fresh cycle lows. 
  • The price has already corrected to a 38.2% Fibo so there are prospects for a move lower from here.

The price of gold is consolidating the overnight drop from a high of $1,858.87 to a fresh cycle low of $1,810.67. The US dollar has been strong into the end of the week and hit fresh two-decade highs on Thursday as investors move in droves into the safe-haven currency in the face of surging inflation and heightened risks surrounding the Russian invasion of Ukraine.

Finland said it would apply to join NATO "without delay." Sweden is expected to follow. Russia has said it will be forced to take "retaliatory steps" which has weighed on the euro, putting a bid in the US dollar and consequently weighing on the price of gold.

The dollar index (DXY), which measures the greenback's strength against a basket of six currencies, rose 0.4% to 104.92 and is holding in positive territory in Tokyo on Friday, near to the highs. 

"Dollar is rallying as things potentially look negative in the US, which is hurting gold. Also, the market is realising the likelihood of seeing pretty aggressive interest rate increases," analysts at TD Securities argued. 

''A liquidity vacuum is dragging all assets lower, leaving gold to circle the drain in defiance of its safe-haven status, despite the fierce rally in Treasuries,'' analysts at TD Securities said.  

A drop in the benchmark 10-year Treasury yields hit the lowest level in two weeks. The ten-years were down over 3% overnight while the more Fed tentative 2-years were losing 3.7%, weighed by Producer Prices that fell short of expectations. 

The US Producer Price Index increased by 0.5% in April compared with a 1.6% jump in March. Excluding food and energy, the core PPI climbed by 0.4%, lagging the 0.7% gain expected. Core PPI grew by 1.2% in March. On a year-over-year basis, producer price inflation surged 11% in April, and core PPI jumped 8.8%, the Bureau of Labor Statistics said Thursday.

''With CTA trend followers joining into the liquidation party, substantial selling flow continues to weigh on the yellow metal at a time when liquidity is scarce,'' the analysts at TD Securities said. 

''Prices are now struggling to hold onto the bull-market-era defining uptrend in the yellow metal under the pressure of this selling flow. For the time being, the trendline has held despite the strong CPI report, as the turbulence in risk assets sparked a bid in Treasuries, but we continue to see a significant amount of complacent length in gold which could weigh on prices, while the breadth of traders short has just started to rise from near-record lows.''

Gold H4 chart

The price has been rejected but nevertheless, the 4-hour candle closed bearishly so there is every chance that the bears will step in again at a discount on the lower time frames as follows:

Gold H1 chart

The price has already corrected to a 38.2% Fibo so there are prospects for a move lower from here as the correction decelerates. However, the price action is less than convincing. Some further mitigation of the price imbalance until the 61.8% Fibo towards the $1,830s.

On the way lower again, bears will be heading into new territories and a test below the psychological $1,800 round figure will be on the cards:

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