Gold price rallied after the first calm session in familiar trading range as the dollar retreated and risk aversion mood. The US Dollar Index slides with a slight pullback after hovering near a one-year high amid rising energy prices and the Fed’s tapering expectations. According to market analyst Haresh Menghani, concerns that economic growth will slow due to rising oil prices are supporting the precious metal close to lows.
“Early tapering prospects may limit further gold gains”
cryptocoin.com As we reported in our news, investors remain pessimistic after China’s Evergrande missed its third consecutive round of bond payments in three weeks, thus increasing the likelihood of default risk contagion. In addition, Philip Lane, chief economist at the European Central Bank (ECB), seems unaware of the impact of the current eurozone inflation crisis, which is triggering monetary policy decisions as wage and services sector growth remains weak.
The analyst states that gold took a dip near the $1,750 region during the Asian session on Tuesday and climbed to new daily highs in the last hour, adding that the hedging impulse in the markets currently hovering around the $1,759 region is seen as an important factor giving some support to the safe-haven gold. .
Meanwhile, concerns that the recent rise in crude oil/energy prices will boost inflation and derail the global economic recovery are fueling fears about stagflation. This, in turn, reduces investors’ appetite for assets perceived as riskier, such as stocks, and traditional safe-haven assets benefit. However, Haresh Menghani reminds that the expectations of early tapering by the Fed may limit further gains of the yellow metal, which is not yielding returns.
Currently, gold may offer some short-term trading opportunities, according to the analyst.
Despite Friday’s disappointing NFP data, investors seem convinced the Fed is on track to begin rolling back its major pandemic-era stimulus as soon as possible. Markets have also begun pricing in the possibility of a rate hike in 2022, amid concerns that inflation will rise faster than expected. This was reinforced by higher US Treasury bond yields, which continue to support the US dollar and could act as a further headwind for dollar-denominated gold. In fact, the benchmark 10-year US government bond yield rose to 1.612%, or a four-month high, on Friday. Because the market’s focus is now shifting to the release of this week’s latest US consumer inflation figures.
The analyst states that stronger-than-expected CPI pressure will reaffirm hawkish Fed expectations and could bring more gains for the dollar. Apart from that, investors will also take cues from Wednesday’s FOMC monetary policy meeting minutes and Friday’s US monthly Retail Sales data. According to the analyst, these data will play a key role in influencing the dollar in the near term and provide a new directional momentum for the gold price. Meanwhile, Haresh Menghani thinks the broader market risk sentiment combined with US bond yields and USD price dynamics could create some short-term trading opportunities around gold.
Technical levels to watch for gold price
According to market analyst Haresh Menghani, any further rise from current levels could likely face stiff resistance near the $1,770 area, and some follow-on buys seem to have the potential to push gold prices back towards the $1,783-84 horizontal barrier. The analyst states that sustained strength beyond that could allow the bulls to aim to reclaim the $1,800 round figure mark, noting the following levels:
On the other hand, the $1,750 area now seems to have emerged as a strong support. A convincing break below could lead to aggressive technical selling and accelerate a slide to September lows, around the $1,722-21 region. Gold could eventually decline to test the lows of $1,700 on its August route in the $1,687 region.
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