In the period from 12:15 to 14:00 (GMT), an increase in volatility in dollar quotes is expected, which will affect all currency pairs with the dollar. This will also affect the XAU/USD pair.
At the time of publication of this article, it is trading near the 1855.00 mark, through which a key resistance level passes (for more details, see "XAU/USD: technical analysis and trading recommendations for 06/02/2022").
Despite the renewed growth in the yield of US government bonds, gold, which is a kind of their competitor, is also in demand. As you know, gold does not bring investment income, and is mainly used by investors as a tool for hedging risks (inflationary, geopolitical, economic). At the same time, its quotes are extremely sensitive to changes in the monetary policy of the world's largest central banks, primarily the Fed. When interest rates rise, gold prices tend to decline as the cost of purchasing and holding it rises.
However, demand for gold remains high, and market participants assess the risks of rising inflation and how the Fed will deal with it. If the rise in inflation "overtakes" the Fed in its efforts to contain inflation, then gold is likely to continue to rise in price. If the Fed's efforts are justified (inflation will subside, while the Fed's interest rates will remain high), then the growth in the price of gold may stop, and in the XAU/USD pair, market participants will again prefer the dollar.
An alternative scenario "will be associated with a breakdown of the support level 1832.00 (Fibonacci level of 23.6% correction to the growth wave from December 2015 and the mark of 1050.00) and a retest of support levels 1800.00, 1785.00." Their breakdown will push XAU/USD to further decline towards the key support levels 1738.00, 1700.00. Breakdown of long-term support level
1682.00 (EMA200 on the weekly chart and the Fibonacci level of 38.2%) will finally break the long-term bullish trend of XAU/USD.
*) see also "XAU/USD: currency pair (characteristics, recommendations)".
Support levels: 1848.00, 1832.00, 1800.00, 1785.00, 1742.00, 1700.00, 1682.00
Resistance levels: 1855.00, 1866.00, 1875.00, 1900.00, 1918.00, 1958.00, 2000.00, 2070.00, 2075.00
*) See also “Technical analysis and trading recommendations” -> Telegram
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Source: InstaForex
