Gold moves with a temporary bullish bias

Gold price leans bullish with time frame continuity in the favour of the bulls as XAUUSD inches higher within a bullish correction of the recent leg of supply from $1,750 that took out the $1,700 level last week.

In general, a pullback in the US dollar continues to support the gold price as investors move to the sidelines ahead of key central bank meetings while the US Fed, market sentiment, ECB and US data are all eyed as potential catalysts.

The US dollar rested on Tuesday below the 20-year highs, as per the DXY index, as it corrects towards a potential area of support in the longer-term time frames, an area that XAUUSD traders will be watching. The Dollar Index has moved in on the 50% mean reversion level of the last weekly bullish impulse.

Gold traders will be keeping a close eye on price action at this juncture. As for catalysts that could tip the balance, the biggest risk to the US dollar and the gold price this week could be the European Central Bank. ECB, on Thursday, although US PMI Surveys for July will be keenly watched ahead of the Federal Reserve meeting next week.

The ECB and US PMI Surveys have the potential to kick start moves in the gold price. The ECB has firmly signaled a 25bps rate hike and while it is unlikely to surprise, the meeting will coincide with news related to the Nord Stream pipe. After a shutdown, gas is supposed to resume flowing.

Heated inflation risks had already seen money markets punting for a half-point hike. The uncertainty is indeed a cloud over the ECB event. However, if the central bank goes ahead with a rate hike, be it 25 or 50bps, regardless, it will be the first time in more than a decade and the outcome of the event could have a material impact on the euro, US dollar and gold price.

The Federal Reserve is around the corner. It will take place on July 26-27 and for the time being, gold prices are being supported by the markets’ repricing for odds of a 100bp hike after Fedspeak from notable hawks has pushed back against this narrative, which is raising the risk of a near-term short-squeeze.