XAU/USD demand sighted around $1,826 for a push towards $1,875

  • Gold moves higher on US dollar weakness following Powell’s testimony.
  • Gold is trading between two levels of resistance & support, $1,810, or thereabout, on the downside and $1,875, or there about on the upside.

At $1,840, the price of gold is a little lower than the highs but still, the bulls are 0.4% higher on the day. The price has traveled between a low of $1,823.45 and a high of $1,847.93 so far. A threat in US Treasury yields and the US dollar has bolstered bullion’s appeal amid growing recession concerns but it has started to give up early gains as investors move into US stocks and risk assets despite higher interest rates.

Bond yields fell ahead of testimony by Federal Reserve chair Jerome Powell to Congress and his delivery was taken as less hawkish. The softer yields are bullish for gold since the yellow metal offers no interest. The yield on the US 10-year note was last seen down 3.8% to 3.156%, falling from a high of 3.283% to a low of 3.124%. Meanwhile, US stock markets have reversed course from early losses and moved higher, with the Dow Jones up 0.6% and the S&P 500 index last seen up 0.75%. The NASDAQ is higher by 0.9%. The US dollar edged down 0.3% as measured by the DXY index, falling from a high of 104.95 to a low of 103.858.

Federal Reserve Chair Jerome Powell said the US central bank is “strongly committed” to bringing down inflation, but there was a sigh of relief that Powell was not any more hawkish than he was when the Fed raised its benchmark overnight interest rate by three-quarters of a percentage point, its biggest hike since 1994.

While Powell said that the Fed was firmly committed to returning inflation to its 2% objective, he did not state that this commitment is unconditional, as the Monetary Policy Report did last week. Additionally, during the Q&A he tried to convince the audience that a soft landing is possible, but that price stability is his priority right now. However, recession fears are mounting.

This is offering support to gold bugs looking for a peak in market pricing for Fed hikes, analysts at TD Securities noted. ”Markets are discounting a recession looming on the horizon, which historically has led a pivot in Fed policy. However, this hiking cycle differs from recent historical analogs as the Fed’s ability to control inflation is limited, given that the supply-side is disrupted.”

”In turn, gold bugs sniffing out a potential stagflationary outcome associated with lower growth but lingering inflation crisis should also consider that central banks, facing a credibility, could also continue to raise rates for longer than they otherwise would. In this scenario, pricing for a Fed pivot would be less associated with recession odds than in prior episodes,” the analysts explained further.

”In the immediate term, CTA trend followers are also supporting the yellow metal, after Chair Powell tactfully manufactured a sell-the-news rally in gold following a 75bp hike, which has manifested as a whipsaw for CTA trend followers.”

Gold technical analysis

The above illustration of the 4-hour time frame pinpoints the areas of liquidity in the order blocks (OBs), or the expected levels of demand and supply, and the areas where the price is yet to mitigate the price inefficiencies (PI), or ‘price imbalances’ (a miss-match in bids and offers). This leaves the price trapped between $1,810, or thereabout, on the downside and $1,875, or there about on the upside.

The nearest demand area, or order block, is located at around $1,826. There is a price imbalance between there and the current spot price that could be mitigated in the near term, drawing the market towards the demand zone. If the bulls commit, then there will be a case for a higher move towards areas of imbalance above on the way towards $1,875.

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