Gold Touches Fresh High As USD Flattened

At $1,799, the Gold Index (XAU/USD) is firm in the New York session, trading 0.37% higher on Monday. Equity markets started the week supported by greater clarity on the Federal Reserve’s policy normalization path and buoyed by central banks’ focus on securing a sustainable business cycle.

Emergency monetary policy accommodation will need to be unwound in most geographies in the foreseeable future. This sentiment pressured the US dollar to fall on Monday, as investors consolidated gains ahead of the closely-watched monthly employment report later this week.

The dollar index was down 0.63% at 96.56 putting it on track for its largest daily fall since 12 January. However, it is still unlikely for Fed to refrain from its decisively hawkish language.

Instead, it is expected that Fed could look past recent weakness as being related to Omicron’s fallout. In this context, the data does not help to inform global macro participants on whether we are facing a new regime at the Fed, or whether they are jawboning to tame inflation expectations.

Gold snaps three days of losses, jumping from a support trendline around the daily lows at $1785. At the time of writing, XAU/USD is trading at $1796, slightly short of the 50-day moving average, which resides at $1801.

So far, an improvement in the market mood has hurt the prospects of a higher greenback, with the USD Dollar Index down some 0.46% in the day, under the 97.00 handle. Furthermore, the US 10-year Treasury yield undermines the buck, down one basis point sitting at 1.787%.

During the weekend, Atlanta’s Fed President Raphael Bostic expressed that he foresees at least three rate hikes, beginning in March, but further noted that the Federal Reserve would increase 50 basis points if inflations remain “stubbornly high”.

The Fed parade began once the US central bank blackout was lifted. Fed’s Daily, George, and Bostic would cross the wires around 16:30 GMT, 17:40GMT, and 18:30 GMT, respectively. Gold traders might turn their attention to all of them, particularly Kansas City Fed Esther George, a voter in 2022. Any hints regarding balance sheet reduction and rate hikes could be taken from their words.

Ukraine – Russia conflict, which investors put aside for a moment after the Federal Reserve monetary policy meeting, gets into the spotlight. The UN security council voted to hold a public meeting on a build-up of Russian troops on the Ukraine border. Furthermore, China’s ambassador to the UN said that he does not consider Russia’s troop build-up near the Ukraine border a threat. US President Joe Biden commented that if Russia chooses to walk away from diplomacy and attack Ukraine, there will be consequences.

The XAU/USD daily chart shows a confluence of the daily moving averages around the $1795-$1805 area, which could pave the way for further gains once broken to the upside. The first support would be $1,800. A breach of the latter would expose Pitchfork’s channel central line around the $1,825-30 area, followed by July 2021 swing high at $1,834 and the YTD high at $1,854.

Contrarily, failure at $1,800 would expose the January 28 daily low at $1,780. Giving way for USD bulls would reveal crucial support levels like November 3, 2021, daily low at $1,759, followed by December 15, 2021, swing low at $1,753.