Gold Update: XAU/USD Eyes U.S. Economic Data for Guidance

GOLD ANALYSIS & TALKING POINTS

• Gold in the green ahead of U.S. economic releases, USD on offer.
• Golden cross losing steam?

XAU/USD FUNDAMENTAL BACKDROP

Gold remains elevated as real yields continue their downward trajectory (refer to graphic below). Softening inflationary pressures in the U.S. have favored a 25bps interest rate hike for the Fed’s February meeting decreasing the opportunity cost of holding bullion relative to a 50bps increment. The USD is also trading lower today despite the Bank of Japan’s (BoJ) rejection of additional YCC changes earlier this morning.

U.S. 10-YEAR TIPS – REAL INTEREST RATE

Source: Refinitiv

Looking at the economic calendar today, U.S. PPI and retail sales data will dominate headlines followed by several Fed officials. Should the economic releases show signs of a continued slowdown within the U.S. economy, recessionary fears may begin to grow and expose the greenback to further weakness, giving gold added support.

China has been grappling with rising COVID cases while promoting a positive re-opening for the nation leaving markets uncertain about the future. Should China manage the current COVID situation, the fiscal stimulus being attributed to the economy could bolster gold demand providing yet another tailwind for the yellow metal.

ECONOMIC CALENDAR

Source: DailyFX economic calendar

TECHNICAL ANALYSIS

XAU/USD DAILY CHART

Chart prepared by Warren Venketas, IG

Price action on the daily spot gold chart has bulls maintaining the 1900 psychological handle as support after a test below in the Asian session. The daily candle currently has a long lower wick which can point to subsequent upside for gold however, this is dependent on the U.S. data later today. The Relative Strength Index (RSI) looks to be coming off the overbought region potentially giving bears some impetus to drive prices lower. Looking at the golden cross (green), the technical signal has unfolded as expected but the sharp rise in XAU/USD prices could lead to a pullback as bulls look to exit their positions.

Resistance levels:

• 1930.00
• 1919.90

Support levels:

• 1909.80
• 1900.00
• 1880.00

IG CLIENT SENTIMENT: CAUTIOUS

IGCS shows retail traders are currently distinctly LONG on gold, with 56% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment; however, due to recent changes in long and short positioning, we arrive at a short-term mixed bias.

Contact and followWarrenon Twitter:@WVenketas