Gold prices stabilized on Wednesday as the Federal Reserve sent conflicting signals on monetary policy. Markets also banked on a demand recovery in China, which is a key importer.
The yellow metal saw two straight days of modest increases as it rebounded from a one-month low reached last week. Gold saw some volatility after Powell’s reiteration that they may need to hike interest rates further, owing to the robust job market and high inflation.
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Powell admitted, however, that “disinflation” had begun and that time was essential to allow prices to fall. The markets saw this as proof that progress was already being achieved against inflation, which impacted the dollar and pushed gold prices higher on Tuesday.
The yellow metal retreated from recent peak last week as statistics revealed that nonfarm payrolls in the United States were significantly higher than anticipated in January. The reading shook the financial markets with concerns that the Fed might hike more than anticipated.
The outlook turns positive
Wednesday is the third day in a row that the gold price has gained traction after rebounding from the $1,860 region, or a one-month low. The momentum propels the XAU/USD to a new weekly high in the vicinity of $1,886 in the first part of the European session. The US session so far continues with the positive pricing. XAU/USD is nearing the $1880 so far 0.25% u psince the US open.
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We can see the massive drop which occurred last week in the chart below, caused by the above mentioned fears of more Fed hikes. The chart lays flat this week, with a slight upwards trend, signalling a positive sentiment.
The bulls stand ready to fight for last week’s prices. The first target could be the 200-day moving average of $1,910. In case the bulls surpass this resistance of $1,910, they can be aiming to reverse the second drop to $1,960.
Gold 1H chart, source: tradingview.com, author’s analysis