Gold price extended a 5-day rally by +0.20% towards a 2-week high on a broadly subdued US Dollar. Falling Treasury yields have also boosted the yellow metal in the near term. The Benchmark US 10-year yields dropped by -1.58% lifting Gold in the near term.
The possibility of a geopolitical conflict between the US and China over Taiwan’s independence may soon bring demand for Gold. President Joe Biden continues to maintain the US commitment to support Taiwan.
A major headwind for Gold is an aggressive tightening by the Fed as investors seek interest-paying assets for investment. Markets are braced for a 50bps rate hike by the Fed in the next two policy meetings. The FOMC meeting minutes will be released in the New York Session on Wednesday. These minutes will be key in framing the direction of the Fed on policy matters at the next two meetings.
Traders should pay attention to the US economic PMI due for release later today.
Gold is currently at a critical pivot area at 1853 and a break above that area will renew bullish interests to reclaim the 1900 level. The yellow metal is currently bound by a Bollinger Band (20) baseline and a close above that area may reinforce the 1900 target outlook.
The Stochastic Oscillator has managed to break above the 50-pivot area giving indications of further upside for Gold bulls. The yellow metal bounced off a 1780.00 level coinciding with 2022 lows and critical areas to watch out for are the 1900 area and 2000 level, capping prospects of a bullish run.
However, a failure to break above 1900 may soon see bulls giving up gains towards the 1780 and 1680 levels.
The ActivTrader Sentiment tool indicates that 55% of retail traders are bullish on the yellow metal as it trades in a critical pivot area. The speech from Fed Chairman Powell will be critical to set the tone on US interest rates ahead of the Fed meeting minutes on Wednesday. Worries about an economic recession in the US will see investors bullishly biased toward Gold.
However, an aggressive tightening will cause the Bullish momentum to lose steam in the near term.
The 4-hour chart shows a modest bullish recovery towards the 1890 level and a break above that area may see bulls targeting the 2000 area. The Williams Alligator is acting as dynamic support for bulls and holding above 1850 may open the way for further upside gains.
The RSI reading is below 80.00 indicating the conditions for the yellow metal have the potential to extend gains to the upside above 1850 support.
However, upside gains remain challenged by the 200-day simple moving average failure to break above that level may see bears attempt to trade towards the 1825 level and 1800 support.