Gold Price Analysis: XAU/USD recovers back to 50, 200DMAs around $1790 after Tuesday’s momenary dip

• Spot gold has recovered back to close to its 50 and 200DMAs after a brief dip to $1770 on Tuesday.
• Prices were weighed on Tuesday by Powell’s hawkishness and traders will be watching day 2 of his testimony on Wednesday.

Spot gold (XAU/USD) prices have recovered off of Tuesday lows on Wednesday and currently trade with gains of about 0.75% on the session and just under $1790. That means spot prices are currently trading just to the south of the 50 and 200-day moving averages, both of which reside close to $1792, and are trading close to the middle of recent $1770-$1810ish ranges.

Recent Price Action

To recap recent price action, spot gold prices on Tuesday reversed from as high $1810 to print session lows at $1770, in line with last week’s lows. Hawkish commentary from Fed Chair Jerome Powell, who essentially signaled intent to press on with monetary normalisation plans despite Omicron-related economic risks, spurred the downside at the time. Gold traders look to further comments from Fed Chair Jerome Powell at day two of his testimony before Congress, which will begin from 1500GMT after the release of the November ISM Manufacturing PMI survey. The survey is expected to point to continued underlying strength in the US manufacturing sector and economy, though also to high inflationary pressures and the impact of shortages.

Gold prices did not see any reaction to the release of a slightly stronger than expected ADP national employment estimate for Friday, which ought to solidify expectations that the official labour market survey will show strong employment growth in November. Markets suspect that this week’s heavy slate of US data should validate Powell’s bullish tone on the state of the economy and should support the argument for a quickening of the Fed’s QE taper plans.

Omicron uncertainty

High levels of uncertainty about how the Omicron Covid-19 variant will impact the global economy is keeping spot gold prices subdued close to its 50 and 200DMAs for now. But should the new variant turn out to be “super mild” as early (anecdotal doctor) reports have suggested, markets could become very risk on once more and Fed tightening expectations for 2022 could come surging back. This could be a bearish catalyst for gold and send it below recent lows in the $1770 area. In a bearish scenario, the $1760 level would be the next in sight and a break below that would open the door to a run lower to $1720, the September lows.