Gold reversed an intraday dip to the $1,810 region and staged modest recovery from over a three-month low touched earlier this Friday. The intraday uptick, however, lacked any follow-through and remained capped below the $1,830 level. The XAU/USD now seems to have stabilized in neutral territory and was seen trading around the $1,822-$1823 region during the early part of the European session.
The US dollar edged lower on the last day of the week as bulls opted to take some profits off the table following the recent run-up to a 20-year high. This, in turn, was seen as a key factor that extended some support to the dollar-denominated gold. That said, a combination of factors acted as a headwind for the precious metal and kept a lid on any meaningful recovery, at least for the time being.
A relief rally in the global equity markets dented demand for traditional safe-haven assets, which was reinforced by a solid rebound in the US Treasury bond yields. Apart from the risk-on impulse, the prospects for a more aggressive policy tightening by the Fed held back traders from placing bullish bets around the non-yielding gold. This warrants some caution before confirming a near-term bottom.
Fed chair Jerome Powell also reaffirmed on Thursday that the central bank is ready to raise interest rates by 50 bps at each of the next two policy meetings. Powell further pledged that the Fed was prepared to do more to curb soaring inflation. The fundamental backdrop favours the USD bulls and suggests that the recent downward trajectory for gold prices might still be far from being over.
Even from a technical perspective, the metal on Thursday confirmed a fresh bearish breakdown below the very important 200-day SMA. Hence, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Traders now look forward to the prelim US Michigan Consumer Sentiment Index for a fresh impetus later during the early North American session.
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