Talking points in gold
Below $1900, gold prices enter another constrained area of support and resistance.
XAU/USD is held steady around $1900 by psychological barrier, while Fibonacci support remains solid at $1871.6.
As a result of last week’s falls, which sent XAU/USD below $1900, gold futures have had a difficult time rebounding. The announcement of solid US economic data and a breach of trendline support interrupted the three-month rally that had been fueling the recovery from the low of October, $1618.3, after it had climbed to a nine-month high of $1975.2 last week.
Both technical and fundamental reasons contributed to the collapse in gold as the 22% rebound from the October lows fizzled out.
Even while safe-haven assets like gold and silver are frequently employed as a hedge against inflation, the non-yielding commodities are vulnerable to an increase in interest rates.
Gold prices briefly increased before reaching a top of $1975.2 after the Federal Reserve indicated a lower 25 basis-point rate hike at the FOMC meeting earlier this month (1 Feb). Markets were not surprised by the news since they saw the lesser rate hike as a hint that the Federal Reserve would continue to moderate the pace of tightening.
Gold’s potential gain was constrained since market players had already factored in a 99% likelihood of a rate increase of 25 basis points. A string of doji candles, a sign of uncertainty, formed on the four-hour chart when gold futures increased over the March 4th 2022 high of $1974.9.
The strong barrier of resistance stayed firm, preventing bulls from moving over $1975.2 while the 24 February 2022 high (the start of the war in Ukraine) maintained at $1976.5.
XAU/USD fell back below $1930 as sellers pushed prices down, breaking previous trendline support from the October low. The US economy generated 517,000 jobs in January, yet gold prices kept falling before leveling off around $1880.
A rejection of the upper wick at the current monthly high on the weekly chart below was followed by a significant decline and a retest of $1873.2. The commodities channel indicator, or CCI, dropped down from overbought position at the same time, indicating that bulls had run out of steam. A narrow range between $1873 and $1880 has emerged as a result of the current weekly candle’s lack of movement. The 23.6% Fibonacci of the 2018–2020 increase has created another area of support right below that at $1871.6. Prices may continue to fall towards the next support target of $1836.6 if they break through this level.