- Rebounding US bond yields underpinned the USD and capped the upside for gold on Thursday.
- The metal might continue to benefit from its status as a hedge against surging consumer prices.
- Any meaningful corrective slide could still be seen as a buying opportunity and remain limited.
Gold now seems to have entered a bullish consolidation phase and was seen oscillating in a narrow trading band, just below a one-week high through the early European session. As investors digest a surge in the US consumer prices, a goodish rebound in the US Treasury bond yields helped ease the bearish pressure surrounding the US dollar. This, in turn, was seen as a key factor that acted as a headwind for the dollar-denominated commodity.
Apart from this, the prospects for an eventual Fed lift-off in March 2022 held back bulls from placing fresh bets around the non-yielding data. Data released on Wednesday showed that the headline US CPI surged to the highest level since June 1982 and core CPI registered the biggest advance since 1991. The report reinforced the need for quicker interest rate hikes, though was not deemed worrying enough to change the Fed’s already hawkish outlook.
Moreover, gold, which is considered a hedge against rising prices, could further benefit from stubbornly high inflation. This, along with the cautious market mood, should help limit the downside for the safe-haven gold. Hence, any meaningful pullback could still be seen as a buying opportunity and remain limited, at least for now. Nevertheless, the XAU/USD, for now, seems to have snapped four successive days of the winning streak.
Market participants now look forward to the US economic docket, featuring the release of the Producer Price Index (PPI) and the usual Weekly Initial Jobless Claims. This, along with Fed Governor Lael Brainard’s testimony on her nomination as Vice-Chair, will influence the USD later during the early North American session. Traders will also take cues from the broader market risk sentiment for some short-term opportunities around gold prices.
From a technical perspective, the recent move up witnessed over the past one week or so stalled just ahead of the $1,830-32 supply zone. The mentioned barrier should now act as a pivotal point for short-term traders, which if cleared decisively will set the stage for additional gains. Gold could then accelerate the momentum to the next relevant hurdle near the $1,848-50 region. The upward trajectory could further get extended towards the $1,869-70 area en-route the $1,877 zone, or a multi-month high touched in mid-November.
On the flip side, immediate support is pegged around the $1,815-12 horizontal zone. Any further decline is likely to get bought into and remain limited near the $1,800 round-figure mark. Some follow-through selling could drag gold towards support marked by an upward sloping trend-line extending from August 2021 swing low, currently around the $1,785 region. A convincing break below will be seen as a fresh trigger for bearish traders and pave the way for deeper losses, possibly towards December swing low, around the $1,753 region.
Gold daily chart
Levels to watch