Gold Price Analysis: XAU/USD consolidates the rebound below $1790, awaits Powell

Update: Gold price has stalled its recovery rally, consolidating within Monday’s trading range below $1790, as the bulls take a breather before attempting another leg higher towards the 100-Daily Moving Average (DMA) at $1794. A minor uptick in the US dollar after the recent correction is limiting gold’s further upside. Meanwhile, the bulls continue to draw support from a retreat in the US Treasury yields and optimism on President Joe Biden’s infrastructure spending plan.

Meanwhile, an upbeat market mood also dents gold’s appeal. Investors await the Q&A session that will follow Fed Chair Jerome Powell’s testimony for fresh cues on the monetary policy path. In a text of his testimony released early Asia, Powell said that the “Fed will do everything we can to support the economy for as long as it takes to complete recovery.”

Read: Fed's Powell: Inflation has increased notably in recent months


The price of gold is higher by over 1% as the greenback retreats from the ground made subsequent of a hawkish hold at the Federal Reserve last week. 

At the time of writing, XAU/USD is trading at $1,783 having crawled back from a low of $1,764.23 to a high of $1,786.62. DXY is down modestly today after four straight up days at 91.87, losing some 0.5% on the day from 92.37. 

The greenback traded Friday at the highest level since April 9 near 92.405. Technically, the retreat on Monday could be part of a bigger move to the upside.  

Analysts at Brown Brothers Harriman argued that the break above 91.946 last week sets up an eventual test of the March 31 high near 93.437. 

On the charts, a retest of the mid-April supporting range or even the early May highs could be in order first, however:

For gold, the Fed's decisively hawkish tone has killed inflation risk premium.

''While the FOMC maintained its inflation forecast, it also pencilled in two hikes for 2023 — signalling a change in reaction function, which challenges their credibility for average inflation targeting,'' analysts at TD Securities explained.

''The Fed isn't behind the curve by any means, which removes the immediate impetus to buy gold.''

''Considering that gold was set-up for a pullback like a speed bump on the racetrack, with speculative and physical flows slowing, the ongoing pullback likely has more room to run,'' they added.

''Unfortunately for gold bulls, underlying inflation trends will remain distorted for months, which also inhibits the immediate impetus for buying the yellow metal.''

Fed speakers eyed

Meanwhile, there has been some back peddling from the Fed speakers on Monday, including comments from both St. Louis Fed President James Bullard and New York Fed Pres John Williams and Dallas Fed's Robert Kaplan.

NY Fed Pres Williams: Economy hasn't improved enough to pare policy stimulus

Fed's Kaplan: Policymakers reacting to dramatically improved economic outlook

Bullard said that he doesn't see how rates can get substantially higher than they are in the EU or Japan.

Meanwhile, other policymakers including Boston Fed chief Eric Rosengren are among the numerous other officials speaking this week who may provide more clarity after St. Louis’s James Bullard said last week interest rates may need to rise in 2022.

However, traders will be mostly looking out for the chair Jerome Powell this week when he speaks before US lawmakers on Tuesday to give them an update on the Fed’s support for the economy through the pandemic.

The US dollar can continue to firm in an environment where rates are perceived to be getting stronger in the US before other nations as investors search for yield, for which gold does not offer. 

 However, the gold bug isn't dead just yet, analysts at TD Securities argued. 

''If inflation turns out to be truly transitory'', as TD Securities expects, ''then pricing for Fed hikes will prove too hawkish.''

Gold technical analysis

The monthly chart is showing that the price of gold could be in just a temporary decline as it forms part of the right-hand shoulder of what is potentially turning out to be a bullish reverse head and shoulders. 

 From a daily perspective also, the above analysis illustrates that the bulls are on the verge of correction towards an old support structure.

This area has a confluence with the 38.2% Fibonacci retracement of the prior bearish series of daily closes. 

A break of this resistance could be significant and lead to a deeper correction back towards the neckline of the monthly H&S and the dynamic counter-trendline resistance. 

Previous update

Update: Gold (XAU/USD) bulls take a breather around the weekly top of $1,787, keeping the previous day’s rebound from a two-month low, amid the initial Asian session trading on Tuesday. Gold prices cheered the risk-on mood, backed by the Fed policymakers’ efforts to tame rate-hike woes, the previous day. However, the latest sluggish momentum could be traced to the lack of fresh catalysts as well as challenges to the US-China trade deal. Also, mixed comments from some of the Fed speakers and cautious sentiment ahead of Fed Chairman Jerome Powell’s testimony add barriers to gold’s upside.

Technically, 38.2% Fibonacci retracement of November 2020 to March 2021 downside probes the gold buyers around $1,788 ahead of 100-day SMA (DMA) near $1,795.

In addition to Fed’s Powell and Sino-American trade deal, chatters over US President Joe Biden’s infrastructure spending and covid also becomes the key to follow. That said, S&P 500 Futures remain sluggish even as Wall Street benchmarks posted notable gains on Monday.

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