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Gold (XAU/USD) FUNDAMENTAL BACKDROP
Gold continued its decline in European trade to retest the psychological $1800 level. The precious metals continued decline this morning was surprising given a declining US dollar index and retreating US Treasury yields. Yesterday saw gold print a fresh high around $1833 before a rally in the dollar index coupled with technical hurdles pushed price down toward the $1814 level.
Developments out of China could be partly to blame for the continued decline in gold prices. China being one of the largest commodity buyers globally has relaxed a lot of covid protocols recently sparking hope that demand for commodities will increase as more restrictions are lifted. Market optimism around China however has taken a hit over the last 24 hours as rumors began circulating that the US and other countries are considering travel bans on Chinese travelers. This coupled with rising case numbers have put markets on edge regarding the potential recovery of the Chinese economy heading into 2023.
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Markets seem to be in a cautious mood and without any clear catalyst there is every chance gold struggles to maintain any momentum in either direction. Looking ahead to the rest of the day the only significant piece of data out is US pending home sales for November. I doubt that the data release will have any significant impact in pushing gold in either direction for a sustained moved especially in a period of thin liquidity.
For all market-moving economic releases and events, see the DailyFX Calendar
From a technical perspective, Gold retested the top of the wedge channel before declining to retest the psychological $1800 level. Price action continues to print higher highs and higher lows keeping the bullish trend in play. However, given the thin liquidity and lack of catalysts a break of the wedge pattern may remain elusive as the New Year approaches.
Immediate support rests at $1800 with a daily candle close below $1795 level potentially opening up a retest of the 200-day MA resting at the $1782 handle. A move to the upside would have to navigate resistance at $1815 and $1825 before approaching the top of the wedge pattern once more.
Gold (XAU/USD) Daily Chart – December 28, 2022
IG CLIENT SENTIMENT DATA: BEARISH
IGCS shows retail traders are currently LONG on XAU/USD, with 72% of traders currently holding long positions. At DailyFX we typically take a contrarian view to crowd sentiment and the fact that traders are LONG suggests that XAU/USD may fall.
Written by: Zain Vawda, Markets Writer for DailyFX.com
Contact and follow Zain on Twitter: @zvawda