Sunday, June 16, 2024

Gold Price holds above 200-DMA, upside potential seems limited amid hawkish central banks

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Gold Price reversed an intraday dip to the $1,845 area amid the prevalent cautious mood.
Expectations for more aggressive central banks and a stronger USD should cap the upside.
The market focus remains glued to the ECB meeting on Thursday and the US CPI on Friday.

Gold Price struggled to capitalize on the previous day’s goodish bounce from the $1,837 area – levels just below the very important 200-day SMA – and edged lower on Wednesday. The early downtick, however, was bought into near the $1,845 region amid the prevalent cautious mood, which tends to benefit the traditional safe-haven precious metal. The XAUUSD was last seen trading just above the $1,850 level, nearly unchanged for the day heading into the North American session.

Gold Price benefits from worsening global economic outlook 

The market sentiment remains fragile amid concerns that a more aggressive move by major central banks to constrain inflation could pose challenges to global economic growth. Adding to this, the World Bank slashed its 2022 global growth forecast on Tuesday to 2.9% and tempered investors’ appetite for perceived riskier assets. This was evident from a generally weaker tone around the equity markets, which could drive some haven flow towards the XAUUSD. Despite the supporting factors, any meaningful upside still seems elusive, warranting caution before placing aggressive bullish bets.

Also read: Gold Price Forecast: Bull-bear tug-of-war around $1,850 extends, all eyes on US inflation.

Rate hike bets, stronger US dollar to cap Gold Price

Investors remain concerned that the global supply chain disruption caused by the Russia-Ukraine war could push consumer prices even higher. This might force the Federal Reserve to tighten its monetary policy at a faster pace, which, in turn, could trigger a fresh leg up in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond has shot back above the 3.0% threshold and helped revive the USD demand. The European Central Bank (ECB) is also expected to join its global peers and hike interest rates to tamp down inflation. This might further contribute to capping the non-yielding yellow metal ahead of the key ECB monetary policy meeting on Thursday and the US consumer inflation figures on Friday.

Rising inflation fuels rate hike bets

Previewing the upcoming US Consumer Price Index (CPI) data, “there are signs of easing price pressures,” FXStreet Analyst Yohay Elam said. “Most importantly, wages advanced by only 0.3% in both April and May, a total of 0.6%, while expectations imply an accumulated gain of 1.1% in Core CPI. Such a mismatch cannot be ruled out, but seems unlikely.” In case inflation figures come in softer than expected, investors could see that as a development that could allow the Fed to pause rate hikes in September. In that scenario, US T-bond yields could retreat and help gold gain traction.

Gold Price technical outlook

Gold Price, so far, has managed to defend a technically significant 200-day SMA support, which is currently pegged near the $1,842-$1,841 region. This area should now act as a pivotal point, which if broken decisively could drag the XAUUSD towards the $1,830 intermediate support en-route to the $1,810-$1,808 area and the $1,800 round-figure mark.

On the flip side, momentum beyond the $1,857-$1,857 region is likely to confront resistance near the $1,870 supply zone. Sustained strength beyond would negate any near-term bearish bias and lift the XAUUSD to the next relevant hurdle near the $1,885-$1,886 area. The momentum could further get extended and allow bulls to aim back to reclaim the $1,900 mark for the first time since early May.

Gold Price could be headed lower

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