Market Overview

Gold’s decisive battle

Gold dipped to $1832 on Wednesday morning, pulling back to a critical support line in the form of the 200-day moving average, losing more than 11% from the peak levels reached in early March.

Gold has been under systematic pressure for the past month and a half amid a rally in the dollar. In addition to this increase in the underlying price, gold has been losing buyers amid a jump in US government bond yields.

However, it is too early to talk about a break in the uptrend in gold, but only a retreat into deep defences ahead of essential data.

Most of the time, the correlation between inflation expectations and long-term bond yields governs the dynamics in gold. Weak real bond yields lead to a pull in the precious metal as investors look to protect the purchasing value of capital.

With high interest rates and inflation control, investors prefer to earn yields in bonds by selling off gold.

A significant event for the gold outlook is today’s US inflation release. The market reaction to this event could be decisive for gold in the coming days or weeks.

Consolidation below $1830 on the day would be an essential bearish signal that could rapidly decline towards $1800. Moreover, there would be an immediate question of double-top formation through 2020 and 2022 peaks as an early signal of a long-term downward trend with a potential of $1200.

If gold manages to develop a pullback from current levels, we could see a sharp increase in buying over the next few days, as we did in early February and late November. But unlike those episodes, this time, the bears might not wait for a quick reversal, and a further rally would be an important signal that gold continues to claw its way out of the prolonged correction.

In this case, the nearest stops might be the levels near $1900, and further, the market might quickly target a renewal of the historic highs above $2075 before the end of the year.

The FxPro Analyst Team

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