After big losses on Tuesday, gold is trying a modest comeback despite trading below $2,000 early Wednesday. The US Dollar (USD) is losing its rebound momentum as risk sentiment improves following modest progress. In the US debt ceiling discussions overnight.
The US debt ceiling discussions will set the tone for risk sentiment, while gold prices will follow.
The gold market halted its rally and fell strongly on Tuesday. As the bullish risk tone faded ahead of the US debt ceiling discussions between US President Biden and congressional leaders. On a deal to extend the nation’s debt limit and prevent a catastrophic default.
With a negative shift in market mood. Traders saw a significant resurgence of demand for the safe-haven US Dollar. Which smashed Gold Price has dropped below the psychological mark of $2,000 once again. The persistent rise in US Treasury bond rates. As a result of US default worries impacted on the non-yielding gold price. The benchmark 10-year US Treasury rates have returned to the critical threshold of 3.50%.
So far in Wednesday’s trade, the gold price appears to be stabilizing. As investors hailed the overnight meeting between President Biden and Republican Kevin McCarthy. According to Reuters, the discussion concluded on a positive and unexpected note. With McCarthy saying after meeting with Biden and other House leaders. “It is possible to get a deal by the end of the week.”
Meanwhile, the US Dollar is failing to prolong its rebound. As investors examine conflicting US Retail Sales data. And comments from numerous US Federal Reserve officials. Fed officials are scheduled to meet the day prior. Retail sales in the United States increased by 0.4%, falling short of the 0.7% increase projected. Sales climbed 0.4% excluding automobiles over the given period.
Atlanta Fed President Raphael Bostic stated that the Fed will need to be “super strong” in battling inflation. Even if the unemployment rate rises later this year. While Chicago Fed Austan Goolsbee stated that talking interest rate decreases is premature.
According to Bloomberg, Thomas Barkin, president of the Federal Reserve Bank of Richmond, is willing to raise interest rates. Further if it is necessary to reduce inflation. Along with the rebound in the US Treasury, hawkish Fed speak also helped the US Dollar stage a dramatic reversal on Tuesday. Markets currently price in a 78% likelihood of a Fed rate rise halt in June and a 22% possibility of a rate decrease in July, down from about 33% a week ago.
Later on, Wednesday, the spotlight will be on the mid-tier United States Housing Starts and Building Permits data, while the Fed speak will be keenly scrutinized alongside the developments with the US debt ceiling.
XAUUSD Technical Analysis
Gold price stalled its rally below the falling trendline resistance, then at $2,020, as seen on the daily chart, allowing sellers to seize entire control.
As a consequence, on a daily closing basis, gold price broke over the flattish 21-Daily Moving Average (DMA) at $2,008.
The bearish breach of the 21 DMA support exposes Gold to further decline, with immediate support at the positive 50 DMA around $1,982.
Furthermore, on Tuesday, the 14-day Relative Strength Index (RSI) breached the 50 marks for the downside, now trading at 47.17, indicating that the tide has shifted in favor of Gold bearish. A psychological drop towards $1,950 cannot be ruled out.
On the other hand, any recovery attempts will need to establish a firm footing above the prior support, which is now resistance at the 21 DMA. Prior to that, gold purchasers must regain the $2,000 threshold.
Further higher, the previously indicated descending trendline resistance, now around $2,010, might put bearish commitments to the test.
A sustained breach below the 50 DMA ceiling might result in a test of the static support at $1,977, below which a new bottom could be set.
