Gold (XAU/USD) is seeing a recovery on Tuesday after slumping the previous day, largely due to a weakening US Dollar (USD) as US yields soften and oil prices drop. Market participants are keenly awaiting important US inflation data this week to gauge the Federal Reserve’s (Fed) policy direction. The XAU/USD pair has bounced back from around $4,150 but is still below the two-week trading peak, which is at $4,230.
On Tuesday, the US Dollar Index (DXY)—which assesses the USD against a group of six currencies—declined by 0.25%, influenced by a slight retreat in US Treasury yields and a modest drop in oil prices. Typically, precious metals tend to perform well under these conditions, although the current cautious market sentiment indicates that any dips in the US Dollar might be somewhat contained.
Maybe some investors are winding down their long positions in the USD before the release of the Consumer Price Index (CPI) figures set for Wednesday and the Producer Price Index on Thursday.
Cleveland Fed President Beth Hammack reiterated her support for higher interest rates earlier on Tuesday, but this hasn’t significantly affected either the USD or precious metals. Recent economic data largely dismiss the likelihood of a rate hike in October, showing a mere 20% chance according to the FedWatch Tool. However, there’s still some expectation for a potential increase in December, and the market will be closely examining this week’s data for confirmation.
Technical Analysis: Bulls need to break $4,230 resistance to confirm a trend shift
XAU/USD has moved back to the $4,190 level after bouncing from the previously breached trendline around $4,150 on Monday. This is a positive indicator, but to solidify this upward trend, it needs to break the October peak near $4,230. The momentum indicators on the 4-hour charts suggest a moderately bullish sentiment, with the Relative Strength Index (14) hovering in a neutral-to-positive zone and the MACD indicator stabilizing in slightly positive territory. Yet, it appears the pair requires more momentum to conquer the resistance above.
If it surpasses $4,230, subsequent bullish targets would likely be the high from September 25 at around $4,310 and the mid-September peaks near $4,400. On the other hand, if it breaches the aforementioned trendline, now positioned at $4,135, it could potentially bring bears back into play, retesting the previous week’s lows around $4,071, leading towards the psychological support level of approximately $4,000.
