Gold Rebounds Modestly From Weekly Low, Retakes $1928.00s Amid Modest U.S. Dollar Pullback

Key Takeaways:

• Gold came under fresh buying pressure on Tuesday and was supported by a combination of factors
• A weaker tone surrounding U.S. Treasury yields combined with a series of harmful U.S. macro data undermines the greenback and helps exert upward pressure on XAU/USD pair 
• Inflation concerns and Geopolitical risks could lend some support to the metal

Gold witnessed some buying on Tuesday during the Asian session and rebounded modestly from the vicinity of the $1922.813 level. As per press time, Gold is trading in modest gains, having already registered a 0.32% daily gain and looks set to keep its offered tone heading into the European session amid weakening U.S. dollar demand. Retreating Treasury bond yields and a weaker risk tone undermined the safe-haven greenback, which in turn was a key factor that acted as a headwind to the XAU/USD pair. Apart from this, a goodish rebound in the U.S. equity markets helps drive flows away from the haven greenback toward the precious yellow metal and, in turn, exerts further upward pressure on the shared currency.

Additionally, investors have taken a cautious stance, shied off from risk-perceived assets, and decided to wait on the sidelines before the release of the Fed's Preferred Inflation Gauge Core PCE data on Friday. 

Further weighing down on the greenback and contributing to the sentiment surrounding Gold prices were the weak S&P Global PMI flash readings for June, which pointed to a slowdown in the U.S. economy. The S&P Global U.S. Manufacturing PMI fell to 46.3 in June 2023, pointing to the most significant contraction in the manufacturing sector since December, compared to 48.4 in May and forecasts of 48.5, preliminary estimates showed. Additionally, the S&P Global U.S. Composite PMI dropped to 53.0 in June 2023, down from 54.3 the previous month. Furthermore, the S&P Global U.S. Services PMI edged down to 54.1 in June 2023 from 54.9 in May and compared with market expectations of 54.

Despite the combination of negative factors, the upside seems limited amid firm market expectations of a hawkish Fed at the next monetary policy meeting. Investors seem convinced that the Federal Reserve will hike rates by 25bps in July, following a rise in probability to 75.6% from 72% the previous day, as seen in CME's FedWatch Tool. The bets were reinforced following the Fed Chair's comments before the Senate Banking Committee for his semi-annual monetary policy testimony last week, in which he reiterated his view that more interest rate hikes are likely in the months ahead. Noteworthy, the Fed chair's appearance before Congress came a week after Federal Open Market Committee officials decided to forgo an 11th straight interest rate hike but signaled it still needed to be done with its fight against inflation.

That said, investors might refrain from placing aggressive bearish bets amid inflation concerns in most economies worldwide, including the U.S., which currently stands at double figures of 4.0% and way above the Fed's target of 2.0%. This could support the XAU/USD, a hedge against rising prices. Apart from this, the protracted Russia-Ukraine war continues to threaten global safety and add worries of a global economic downturn.

Against this backdrop, a rebellion against the government of Russia by the Wagner mercenary group over the weekend, which its leader Yevgeny Prigozhin said was a response to an alleged attack on his forces by the ministry, raised concerns about political instability in Russia, and, in turn, could lend further support to the XAU/USD pair. It is worth noting that a clash between the Russian defence forces and Yevgeny Prigozhin's Paramilitary group was averted on Saturday after the armed group withdrew from previously seized areas of Rostov-on-Don and the Southern Military District headquarters following negotiations with Belarusian president Alexander Lukashenko on the condition that the group abstain from advancing towards Moscow. 

As we advance, investors look forward to the release of the U.S. Building Permits data, U.S. Core Durable Goods Order data for May, New Home Sales data for May and the C.B. Consumer Confidence data report for June.

Technical Outlook: Four-Hours Gold Price Chart

From a technical standpoint, the precious yellow metal's inability to capitalize on the move and acceptance above the $1921.000 mark favors bullish traders. Some follow-through buying would uplift spot prices toward tagging the 50-day (blue) Exponential Moving Average (EMA) at the $1953.093 level. Acceptance above this level would pave the way for a short rally toward confronting the $1938.927 resistance level. Sustained strength above the aforementioned level could cause Gold to accelerate its rise toward retesting the upper limit of the descending channel pattern, which also coincides with the technically 200-day solid (yellow) EMA at the $1957.426 level. A Subsequent break above these levels would reaffirm the optimistic bias and pave the way for additional gains. Gold prices could then extend the bullish trajectory toward the $1973.012 - $1968.752 supply zone and, in highly bullish cases, rally toward the $1984.019 resistance level.

On the flip side, the overnight swing low, around the $1921.144 level, now acts as an immediate hurdle ahead of the support level plotted by a descending trendline extending from the early June 2023 swing low. Sustained strength beyond might trigger a short-covering move toward the $1910.522 level, below which the descent could be extended towards the $1900.00 round mark.