- Gold gets some bids on Tuesday and rallies further from a multi-week low.
- A softer risk-off tone coupled with a modest dollar pullback offers support for the metal.
- Aggressive Fed expectations and high US bond yields should limit further gains.
Gold reverses an intraday drop to the $1,730 area and rises to a new daily high during the first North American session. The XAU/USDat the moment, appears to have broken a six-day losing streak to hit a four-week low and is currently hovering around the $1,745 area, though a significant rally still looks unlikely.
Macroeconomic headwinds stemming from China’s COVID-zero policy – which imposes sharp shutdowns after a handful of cases – continue to fuel recession fears. This, in turn, tempers investors’ appetite for riskier assets, manifesting in a generally weaker tone around equity markets and benefiting the safe-haven metal. Aside from this, a modest pullback in the US dollar from a two-decade high appears to further underpin dollar-denominated gold.
The dollar lost more ground after the release of weaker-than-expected US PMI data for August. However, expectations of a more aggressive message from Fed Chairman Jerome Powell at the Jackson Hole symposium on Friday favor dollar bulls. This, in turn, suggests that the path of least resistance for gold is to the downside. Even from a technical point of view, the appearance of new sales at higher levels validates the negative outlook.
In addition, the strengthening of expectations that the Federal Reserve will continue to tighten its monetary policy causes a prolonged sale in the US fixed income market. This, in turn, pushes the benchmark 10-year US government bond yield up to a nearly one-month high and could put some downward pressure on the non-yielding yellow metal. Therefore, any further move to the upside could be seen as a selling opportunity and risks fading quickly near the $1,754 horizontal support breakout point at $1,755.
Gold looks poised to extend its recent pullback from the $1,808 area, ie above the one-month highs reached in early August. The downward trajectory could drag cash prices towards the $1,710 intermediate support on their way to the $1,700 round level.
Technical levels
Source: Fx Street
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