Gold Retreats From All-Time High On Fresh U.S Dollar Buying, Retakes $2125.00 As Markets Eye Powell's Testimony
Key Takeaways:
- Gold (XAU/USD) prices moved further lower from an all-time high on Wednesday, retaking the $2125.00 levels
- Fresh, disappointing U.S. data helped fuel further speculation of early rate cuts by the Fed, which in turn helped gold reach an all-time high
- Fresh U.S. dollar buying helps limit further gains around the precious yellow metal
- Markets remain cautious ahead of today's Fed Chair testimony
Gold (XAU/USD) prices moved slightly lower on Wednesday, retaking the $2125.00 levels just less than twenty-four hours after reaching an all-time high of $2141.95 an ounce, as fresh, disappointing U.S. data fueled further speculation of early rate cuts by the Fed.
An Institute for Supply Management report released on Tuesday pointed to a slightly slower growth in the services sector after official figures showed Services PMI fell to 52.6 in February 2024 from a four-month high of 53.4 in January and below forecasts of 53.0.
Additionally, new orders for U.S. manufactured goods fell by 3.6% month-over-month in January 2024, following a revised 0.3% decrease in December, and compared with market forecasts of a 3.1% decline, a U.S. Census Bureau report confirmed.
In reaction to the disappointing ISM services PMI and factory data figures, U.S. Treasury bond yields slipped lower on Tuesday, which weighed heavily on the buck and helped lift gold prices to an all-time high.
However, an overnight bounce in long-dated U.S. Treasury bond yields and a slightly positive tone around the U.S. equity markets lent support to the buck and helped cap the upside for gold prices.
Gold sellers, however, should take caution and refrain from submitting aggressive bearish bets ahead of Fed Chair Powell's testimony before the Joint Economic Committee in Washington, DC, on Wednesday during the mid-North American session.
Analysts expect the Fed chair to stick to his usual message that he and his colleagues have been saying since last month that they need to substantially see inflation coming down before considering monetary easing.
That said, if Powell maintains a dovish stance per market expectations, this will act as a tailwind to the precious yellow metal and help limit further selling around the XAU/USD pair.
Looking at the broader picture, the upside seems limited amid firm market expectations that the Fed will leave rates unchanged during the March and May meetings and start cutting rates during the third quarter of 2024. This remains supportive of Treasury bond yields and the U.S. dollar.
The bets were reaffirmed after the latest Fed meeting minutes released late last month showed the Fed is concerned about cutting rates too soon, signalling early rate cuts were entirely off the table.
Moreover, a hotter-than-expected January consumer and wholesale inflation report, combined with robust U.S. job data and the recent hawkish Fed official's comments, fully debunks the idea of early aggressive rate cuts and supports the view that rates will likely stay higher for longer.
As we advance, the current sour mood around the U.S. dollar and rising geopolitical tensions continue to lend support to the dollar-denominated commodity, and any further escalation of the conflicts in the Middle East would help raise gold prices.
Technical Outlook: One-Day Gold Price Chart
Looking at gold's one-day price chart, gold is trading at $2125.62, down 0.1% for the day following an extension of the modest bounce from the vicinity of $2141.95, or gold's all-time high. Gold shows signs of further correction from its all-time high amid extreme overbought conditions, as the RSI(14) technical oscillator depicts. However, gold is heavily bullish at this point, as shown by the 20 (blue), 50 (red), and 200 (yellow) EMA levels sitting below the current price level, with the MACD oscillator also dipping in bullish territory. Thus, it will take strong follow-through selling to negate the present bullish bias if sellers are to confirm they are in total control of the market. With Fed Chair Powell's testimony coming up later in the day and as all signs point to him maintaining a dovish stance, I don't see further downside moves around gold but rather a bullish reversal toward the all-time high, which is set to act as a barrier against further uptick.
On the flip side, a further increase in selling pressure beyond the current price level would see gold prices drop toward the previous day's YTD low at $2125.86. On further weakness, gold prices could fall further downwards toward the $2088.70 crucial support level, about which, if this level fails to hold, gold accelerate its downfall to tag the 20-day EMA level currently at $2056.24 level before retesting the key resistance level now turned support level (upper limit of the ascending channel pattern).