The bullion has had a perfect week as it was up every day, except today, as traders took some profits from the recent rally. Gold went from 1,760 USD after the taper announcement to 1,860 USD yesterday.
Both gold and silver advanced despite the USD rising to fresh multi-month highs, sending the EURUSD pair below 1.15 for the first time since July 2020.
Divergence between Fed and ECB
Additionally, short-term rate-futures markets continued to adjust hawkishly, with 2.5 rate-hikes now priced-in by the end of 2022 . As a result, the two-year US yield rocketed to 0.55%, implying a further rise in short-term rates. Still, real yields (nominal yields – inflation) dropped to new lows as inflation (expectations) continued to march higher, therefore boosting the precious metals.
On the other hand, interest rates in the EU bloc will probably remain negative for the foreseeable future as European Central Bank President Christine Lagarde said last week that higher interest rates next year were improbable.
The latest Reuters poll of economists showed that Eurozone inflation will continue to march higher, consistently overshooting European Central Bank’s (ECB) 2% price target next year.
Later in the day, traders will focus on Michigan Consumer Sentiment Index for November, expected to improve marginally from 71.7 to 72.4 . In addition, JOLTS job openings will also be released, potentially causing some volatility in the markets.
Daily chart seems bullish
The bullion managed to jump above the critical resistance of 1,830 USD , killing massive stop-losses of short positions above that level. Further squeeze sent the metal above 1,860 USD.
Considering the overbought conditions, the metal will likely retest the 1,830 USD zone, now the major support. If bulls manage to defend it, the medium-term uptrend might be renewed.
Should the bullish momentum persist, the next target is expected at this week’s highs near 1,865 USD, followed by the significant resistance at the psychological threshold of 1,900 USD.
Alternatively, if gold fails to stay above 1,830 USD, we could see a quick decline toward the 200-day moving average at 1,795 USD.