Gold prices, which had surged by over 1% on Monday to surpass the mid-$1,800s, faced a correction as renewed demand for the US Dollar (USD) and a positive risk tone in equity markets weighed on the precious metal’s value. While the Israeli-Palestinian conflict initially drove the safe-haven gold to a one-week high, it encountered resistance near the $1,865 mark.
Despite dovish remarks by Federal Reserve (Fed) officials, the market sentiment continues to price in the possibility of at least one more interest rate hike by the end of the year. This outlook has halted the recent decline in US Treasury bond yields and revitalized demand for the US Dollar, diverting funds away from the non-yielding gold.
The generally positive risk tone in equity markets further undermined the appeal of gold as a safe haven. Nevertheless, the ongoing geopolitical tensions in the Middle East have limited the downside potential for gold prices. Traders are now adopting a cautious stance and awaiting key releases from the United States (US) later this week, including the FOMC meeting minutes on Wednesday and consumer inflation figures on Thursday. These releases are expected to provide fresh insights into the Fed’s rate-hike path and could offer significant momentum to XAU/USD.
From a technical perspective, gold may find support near the $1,835-1,833 region, which represents a multi-day trading range resistance breakpoint. A decisive break below this level could suggest the correction has concluded and push gold towards the $1,820 support, eventually leading to a test of multi-month lows around the $1,810 zone. A sustained downturn would confirm a death cross pattern on the daily chart, with the 50-day SMA positioned well below the 200-day SMA, potentially leading to further depreciation.
On the flip side, bullish investors may await a sustained breakout above the $1,865 level before considering long positions, targeting the next key resistance near $1,885. This is closely followed by the $1,900 psychological level, situated near the 50-day Simple Moving Average (SMA), which could serve as a pivotal point. Further buying activity would suggest the formation of a near-term bottom, potentially paving the way for a test of the 200-day SMA around the $1,928-1,930 region.