Gold(XAUUSD) is trading with mild losses, having reverted to five-week lows of $1,853 on Friday. The gold price is off to a bad start this week, with the US Dollar (USD) having the upper hand amid risk-off market mood.
Worries over US-China relations and pre-US inflation data increase the safe-haven US Dollar.
Geopolitical tensions between the United States and China have resurfaced, as the downing of four unmanned aircraft has prompted new concerns about US-China ties. On February 4, a US fighter jet shot down a Chinese surveillance balloon over the South Carolina coast.
Meanwhile, the Telegraph claimed that the Chinese authorities had observed an unexplained object flying over the waters near the northern port city of Qingdao, after the downing of a purported Chinese unidentified object by the Pentagon. Markets remain volatile, boosting safe-haven demand for the US dollar at the expense of the gold price. Asian markets outside China fell, while US S&P 500 futures fell 0.40%, allowing the US Dollar Index to gain 0.15% on the day. Investors are looking for protection in the US Dollar as they remain cautious ahead of the publication of the US Consumer Price Index (CPI) on Tuesday.
The US CPI data has been the most influential market mover in the last year, since the outcome has a significant impact on the US Federal Reserve’s monetary policy stance. The Federal Reserve raised its policy rate by 25 basis points (bps) earlier this month, and Fed members have subsequently expressed support for more increases. Policy tightening that may boost the top rate above 5.0%. The Federal Reserve’s hawkish forecasts have sustained US Treasury bond rates, providing legs to the US Dollar’s rebound from ten-month lows.
With no big central bank decisions anticipated this week, markets will be focused on officials’ remarks, the incoming leadership of the Bank of Japan, and the all-important US Consumer Price Index.
Gold(XAUUSD) Technical Outlook
Following the confirmation of a Bear Flag last Thursday, gold dropped further on Friday and challenged the important 50-Daily Moving Average (DMA), which was then at $1,855. However, purchasers lingered around that level, allowing for a substantial comeback in the Gold price.
On Monday, gold sellers resumed their assault on the 50-day moving average, which is sitting around $1,857. A daily close below the latter is required to extend the bearish continuation pattern’s fall breach into the psychological mark of $1,850.
On a sustained break below the $1,850 demand level, a new sell-off towards the January 5 low of $1,825 might be in store. The 14-day Relative Strength Index (RSI) remains susceptible below the midpoint, maintaining the gold price’s negative bias.
However, a bullish crossover might provide Gold with some brief relief. As investors await the next dramatic move in the US Consumer Price Index. On Friday, the 100DMA crossed the 200DMA, confirming a Bull Cross.
If gold bulls can take out the intraday high at $1,866, a test of the bear flag support-turned-resistance at $1,877 may be in order. Acceptance over the latter is essential for kicking off a substantial rebound towards the $1,885 static resistance.
