- Gold Prices failed to hold above $1900 on Wednesday and hit their lowest level since late February in the $1880s.
- An improvement in risk appetite, rebound in US yields and strength in the US dollar all weighed.
- Now that key $1890 support has been broken, gold bears are eyeing support around $1875, $1850 and $1830.
Market Update
Stabilisation in risk appetite, a rebound from recent lows in US yields and continued upside in the US dollar made for a bearish combination for spot gold (XAU/USD) prices on Wednesday. The precious metal hit its lowest levels since late February near $1880 and at current levels slightly below $1890, trades with losses of nearly 1.0% on the day.
Technical Observations
That means XAU/USD on the week losses now stand at around 2.3%, with prices having reversed over 5.0% lower since last Monday's highs near $2000. Seeing as the pair has now broken to the south of key support in the form of March lows around $1890 and been unable to reclaim the $1900 level, the door is open to a further push lower towards support in the form of the Q4 2021 highs around $1875.
Below that, $1850 was a notable area of resistance turned support from January and February and there is then the 200-Day Moving Average at $1832. Analysts have warned that the pace of recent USD gains is not sustainable. For reference, the DXY on Wednesday hit its highest levels since 2017 above 103.00, taking its gains since the start of the month to over 4.5%, its best one-month performance since January 2015.
Looking Ahead
Should traders begin taking profit on dollar longs in the days ahead, this could provide spot gold with some much-needed respite. Still, many analysts do not expect a significant recovery for XAU/USD in the short term. US Q1 2022 GDP growth and March Core PCE inflation data out on Thursday and Friday should re-emphasise that conditions in the US economy (strong growth and sky-high inflation) are ripe for monetary tightening.
And the Fed is expected to do just that with a 50 bps rate hike next week, which is likely to be followed up by more 50 bps moves at coming meetings plus the start of quantitative tightening. Risks remain tilted towards US yields moving back higher, as opposed to moving lower again, which should take the edge off of any upcoming positioning-related dollar weakness and cap any potential rebound in XAU/USD.
In the coming days, it might be a struggle for XAU/USD to recover back to the north of the $1900 level. China lockdown and a potential embargo/blockade on gas/oil trade between Russia and Europe are notable risks that might trigger some safe-haven demand that could support gold. But both of these risks have already been cited as weighing on stocks and supporting the US dollar but not gold this week, and it remains unclear what might shift this dynamic.
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