- COVID-19 jitters assisted gold to gain some positive traction on Wednesday.
- Rising bets for an early Fed taper, rising US bond yields capped any the upside.
- Stronger USD also acted as a headwind for the metal ahead of the US CPI data.
- Gold Price Forecast: XAU/USD bulls up for a last dance ahead of US inflation?
Gold traded with a mild positive bias through the early European session, albeit lacked any follow-through and was last seen hovering around the $1,733-35 region. The XAU/USD, so far, has struggled to capitalize on Monday’s rebound from the flash crash to the lowest level since late March and has been oscillating in a range over the past two trading sessions. Concerns about the economic fallout from the fast-spreading Delta variant of the coronavirus extended some support to the safe-haven precious metal.
That said, expectations for an early tapering of the Fed’s massive monetary stimulus acted as a headwind for the non-yielding gold and capped the upside. The incoming US macro data, especially Friday’s blockbuster NFP report, marked another step towards the Fed’s goal of substantial further progress in the labour market recovery. This, in turn, forced investors to bring forward the likely timing for policy tightening. Moreover, the Fed officials have also started to guide the market towards an early tapering of the massive pandemic-era stimulus and higher interest rates as soon as 2022.
In fact, Atlanta Fed President Raphael Bostic said on Monday that the Fed could begin tapering between October and December, or earlier if there is another month or two of strong job gains. Adding to this, Boston Fed President Eric Rosengren noted that the US central bank should announce in September that it will start reducing the pace of its monthly purchases of Treasury and mortgage bonds this fall. Separately, Chicago Fed President Charles Evans said on Tuesday that the economy is on track to satisfy the Fed’s threshold to begin tapering its $120 billion in monthly asset purchases. Evans, however, suggested he was not ready to support announcing a tapering of bond purchases in September.
Nevertheless, the repricing of a sooner than expected move by the Fed pushed the yield on the benchmark 10-year US government bond to the highest level since July 14, closer to the 1.37% threshold. This, in turn, provided a goodish lift to the US dollar, which was seen as another factor that acted as a headwind for dollar-denominated commodities, including gold. The market focus now shifts to the release of the US consumer inflation figures, which will influence expectations about the Fed’s next policy action and provide a fresh directional impetus to the XAU/USD.
Technical levels to watch
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