Gold has struggled to capitalize on the previous day’s goodish intraday bounce. The precious yellow metal has witnessed some fresh selling in the Asian session which also spilled into the European hours. The underlying bullish tone in the financial markets was believed to be one of the primary factors that weighed on the haven XAU/USD.
Besides that, the recent runaway rally in the US Treasury bond yields put some more pressure on the non-yielding yellow metal. That said, there is a softer tone that is surrounding the US dollar might extend some support to the dollar-denominated commodity and help prevent deeper losses, at least for now.
Reflation trade is still the primary theme amid the progress in COVID vaccinations and President Biden’s proposed $1.9 trillion stimulus package. News about the stimulus package has been fueling hopes for a major global economic recovery.
Based on the latest development, the United States Food and Drug Administration mentioned that Johnson & Johnson’s one-dose COVID-19 vaccine seemed safe and effective in clinical trials and may grant emergency use approval before the end of February.
In the meantime, the pandemic-relief legislation will be pushed to the House floor for a possible vote on February 26 or over the coming weekend. On top of that, Fed Chair Jerome Powell reassured the markets that interest rates would remain low for a long time and it further boosted the investors’ confidence.
On the second day of his testimony before the House Financial Services Committee on Wednesday, Powell portrayed commitment to the current ultra-easy monetary policy. He acknowledged that the Fed has no plans to cut back on money-printing or raising interest rates in the near term.
The Fed chair also shunned fears about inflation and explained that he would only begin to fear in case the prices start to surge persistently and severely. Meanwhile, the reflation trade and rising inflation expectations continued to push the US bond yields higher. However, all that did very little to offer any meaningful boost to the dollar.
That, in turn, may hold bearish traders from placing any aggressive bets. Most of the market participants now look forward to the US economic docket, highlighting the release of the Prelim (second estimate) Q4 GDP print.
Besides that, the US Durable Goods Orders data and several speeches by influential FOMC members will influence the dollar and produce some significant trading opportunities around the precious commodity.
Near-Term Technical Analysis
From a technical angle, gold has been oscillating between two converging trend lines in the last two months. It seemed to constitute the formation of a bullish falling wedge pattern on the daily time-frame.
Nonetheless, the technical indicators on these market charts appear to be drifting lower into the negative zone and they are yet to support the constructive set-up. That development makes it wise for investors to wait for a sustained break through the wedge resistance that is currently around the $1812-13 region, before taking a position for any more upside move.
Some more buying beyond the weekly tops, around the $1816 level, will reaffirm the bullish breakout and push the precious metal back to the next important resistance zone near the $1842 horizontal zone. Such momentum could further be extended towards the $1852-55 supply zone going to the monthly swing highs located around the $1870 zone.
On the other hand, the $1783-80 area has developed into strong support. It is then followed by multi-month lows that are located around the $1760 region and wedge support located near the $1751 level.
Constant weakness below may now accelerate the downfall towards the $1725-24 congestion zone before gold eventually drops to the next relevant support just before the $1700 mark.
