Gold prices (XAUUSD) are trading lower, near $2,050 per ounce, snapping a three-day winning streak after declining over 0.3% on Tuesday morning’s session as the US dollar strengthens and Treasury yields climb. Hawkish comments from Atlanta Fed President Raphael Bostic fuelled investor confidence in the greenback, pushing the DXY above 102.90. Additionally, upbeat US bond yields, with the 2-year and 10-year hovering around 4.20% and 3.99%, respectively, further weighed on the non-interest-bearing precious metal.
However, a potential shift towards risk aversion due to the escalating conflict in the Middle East could provide some respite for gold. The Houthi group’s targeting of maritime vessels in the Red Sea has raised concerns about regional stability, potentially prompting investors to seek safe-haven assets. Additionally, traders await key economic data releases like the US NY Empire State Manufacturing Index and a speech by Fed Governor Christopher Waller later today for further clues on the economic trajectory and monetary policy outlook.
Despite the recent headwinds, gold could still benefit from market expectations for rate cuts later this year. Traders are pricing in a 70% chance of the Fed cutting rates in March, which could provide some support to the yellow precious metal in the near term.
Technical
On the 4-hour chart, gold maintains a fragile position at $2,048.52, hovering slightly above a significant support zone. Price action trades above the 20-SMA (green line) and 50-SMA (blue line) but remains near the 100-SMA (orange line). The recent bullish crossover of the 20-SMA and 50-SMA suggests potential upside momentum. The RSI indicator slopes slightly downwards but remains above the 50 level at 53.96, indicating neutral sentiment.
Short-term trading opportunities could arise towards the initial resistance at $2,061.63/ounce should the significant zone provide significant support. A break above the $2,061.63/ounce level would likely bring the $2,071.11/ounce and $2,078.83/ounce resistance levels into play in the short term.
However, short-term trading opportunities could exist towards the support level at the $2,041.31/ounce price level should the bears sustain a push below the zone. A break below the initial support could confirm the bearish momentum, likely bringing the $2,029.20/ounce and $2,016.76/ounce support levels into play.
Summary
Gold faces conflicting forces in the near term. Upward pressure could come from rising geopolitical tensions and potential rate cuts later this year. However, the strengthening dollar and higher Treasury yields are acting as headwinds.
Technically, the price action hovers near a crucial support zone, with a break below potentially triggering a bearish move. However, the recent bullish crossover of the moving averages and neutral RSI suggests that the bulls may still have some fight left.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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