Gold Price rebounds towards $1,721-22 hurdle as Fed chatters weigh on USD

Gold Price recovers from yearly low as softer USD, key technical support favor buyers.
Mixed data, Fedspeak allowed XAUUSD bears to take a breather amid pre-FOMC blackout period.
Headlines from China, risk reversal adds strength to the corrective pullback with eyes on ECB, PMIs.

Gold Price (XAUUSD) remains on the front foot around the intraday high of $1,717 as it consolidates recent losses around the yearly low, while also snapping a two-day downtrend heading into Monday’s European session. The metal’s recent gains could be linked to the US dollar’s sustained weakness, as well as optimism in the options market. It’s worth observing that a sluggish start to the key week also contributes to the XAUUSD recovery.

US Dollar Index (DXY) drops for the second consecutive day while extending Friday’s pullback from nearly a two-decade high. In doing so, the greenback’s gauge versus the six major currencies justifies recently easing hawkish bias over the Fed’s next moves, especially after the previous day’s mixed US data and cautious Fedspeak. Additionally, weighing on the DXY is the Fed policymakers’ silence period ahead of late July’s Federal Open Market Committee (FOMC).

Also read: Gold Weekly Forecast: Upward correction could be in the books during Fed's blackout

Gold Price rises as Fedspeakers refrain from 100 bps calls

Gold snaps two-day downtrend as Fed hawks retreat.

Fed policymakers intervened to cool down market expectations of a 1.0% rate hike on Friday, which in turn helped the Gold Price to defend the yearly low marked on Thursday, not to forget positing a rebound from the key support line on a closing basis. Atlanta Fed President Raphael Bostic said on Friday that June's 75 basis points rate hike was a "big move" and added that the Fed wants policy transition to be orderly, as reported by Reuters. On the other hand, San Francisco Fed President Mary Daly said on Friday that the "Fed is working on getting down inflation without stalling economy." Further, St. Louis Federal Reserve Bank President James Bullard sounded neutral as he said, per Reuters, on Friday that it wouldn't make too much of a difference to do a 100 basis points (bps) or a 75 bps rate hike at the next meeting. In this regard, Wall Street Journal’s (WSJ) Nick Timiraos also came out with a piece that turned down the market’s expectations of a 1.0% Fed rate hike.

US economics also probe XAUUSD bears

Friday’s mostly downbeat prints of the US economics helped strengthen concerns that the market expectations of a 100 bps Fed rate hike aren’t well-suited amid impending recession fears. The Index of Consumer Expectations declined to its lowest level since May 1980 at 47.3. The downbeat figures also joined a 0.20% contraction by the US Industrial Production for June to favor XAUUSD buyers. However, US Retail Sales for June grew 1.0% MoM versus 0.8% expected and -0.1% prior (revised from -0.3%) whereas the University of Michigan's Consumer Confidence Index edged higher to 51.5 in July's flash estimate, versus 49.9 expected and 50.0 prior.

Atlanta Fed hints at recession

Friday’s Atlanta Fed GDPNow release bolstered recession fears after the estimate for 2Q growth is coming in at -1.5% versus -1.2% last. The concerns gained momentum as the latest forecasts hint at the second negative figures, which technically mark the US recession. That said, the GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is -1.5 percent on July 15, down from -1.2 percent on July 8.

RR snaps a four-week downtrend

One-month XAUUSD risk reversal (RR), a difference between call options and put options, marked the first weekly gain in five while also posting the strongest RR in favor of bulls as it printed a 0.210 weekly figure by the end of Friday’s North American session. That said, the daily RR figures also rose for the past three consecutive days, to 0.015 at the latest. As the receding bearish bias of Gold Price joins recently hawkish options market clues, the latest rebound is likely to prevail.

China also underpins recovery

Headlines suggesting more stimulus from China also help improve Gold Price. Earlier on Monday, People’s Bank of China (PBOC), Governor Yi Gang said, per Reuters, “China's economy is facing downward pressure due to COVID-19 and external shocks, and the central bank will "increase implementation of prudent monetary policy" to support the real economy.” Reuters also quotes a commentary that appeared in China’s state-owned Securities Times while mentioning, “China's monetary policy has ample room and sufficient tools, including further cutting banks' reserve requirements, to cope with new challenges amid a shaky economic recovery.” It’s worth noting that Xinhua quotes Chinese Vice Premier Liu He as urging stronger steps be taken to boost employment. It should be noted that China is among the world’s biggest gold consumers and hence positive from the dragon nation can favor XAUUSD bulls.

ECB, PMIs in focus

European Central Bank’s (ECB) Monetary Policy Meeting and flash PMIs for Eurozone and the US will be crucial for the Gold Price during this week. While the ECB hawks are all set to announce a 0.25% rate hike, the first in many years, concerns surrounding the recession in Germany appear to challenge the policymakers. On the other hand, the preliminary PMIs for July are likely to portray easing. However, the risk of marking a pessimistic outcome is more for the bloc than the US, which in turn could weigh on XAUUSD.

Gold Price technical outlook

Gold Price extends bounce off an upward sloping support line from March 2021. That said, the corrective pullback from the yearly low also takes clues from the oversold RSI (14) to direct XAUUSD buyers towards a horizontal area comprising multiple levels marked since early 2021, surrounding $1,721-22.

It’s worth noting, however, that the 78.6/% Fibonacci retracement of March 2021-22 upside, near $1,760, could test the metal’s upside past $1,722, a break of which could quickly propel Gold Price to May’s low near $1,787.

On the contrary, the aforementioned support line from March 2021 joins oversold RSI (14) to restrict short-term XAUUSD declines around $1,709. Also acting as a downside filter is the $1,700 threshold.

In a case where Gold Price remains weak past $1,700, the odds of witnessing a south-run towards early 2021 bottom of $1,676 can’t be ruled out.