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Recovery is limited to $1,821, with death cross in play

  • Gold prices will attempt a recovery above $1,800 despite firm Treasury yields.
  • US-China optimism lifts overall market sentiment as all eyes turn to Fed minutes.
  • XAUUSD sees limited upside as the death cross remains in play on the daily chart.

After starting the week on the wrong foot, gold prices are heading north this Tuesday. Renewed upside in the yellow metal can be attributed to a break in the US dollar rebound as an extended risk-on rally in global equities dulled its appeal as a safe haven. Investors cheered renewed optimism on the US-Sino trade front, as the Biden administration is likely to roll back tariffs on some Chinese goods this week to tackle inflation. Meanwhile, Chinese Vice Premier Liu He and US Treasury Secretary Janet Yellen had a constructive virtual call, which also added to the positive market sentiment. US Treasuries led a rally across the curve, along with stock futures, as American government bonds saw heavy selling fueled by US-China headlines. Hence, gold buyers took a breather amid firming yields, awaiting the return of full markets later in the day. US traders return to the trading floor after a three-day long weekend break, gearing up for Wednesday’s FOMC June meeting minutes. Thus, it remains to be seen whether gold prices can sustain the recovery momentum in the coming periods with US factory orders providing some incentives to traders.

Amid the latest spate of US economic data and signs of peak inflation, markets are re-pricing the Fed’s aggressive tightening outlook after the July meeting. This can be seen as the main factor behind the upside in the dollar across its major peers. Wednesday’s Fed minutes will shed more light on the world’s most powerful central bank’s intent on controlling inflation, with Chairman Powell acknowledging last week that a recession was ‘a possibility’ but not likely.

On Monday, XAU/USD faded its early bounce and resumed its downside, as the greenback saw a late rebound with Treasury yields. Gold’s inflation-hedge appeal was hit by a softer inflation outlook, which put additional downside pressure on the metal’s price.

Gold Price Chart: Daily

As noted on the daily chart, the price of gold is holding higher ground, noting a bearish trend resistance at $1,821 on its recovery path.

As the bearish 21-daily moving average (DMA) at $1,830 is next on the buyers’ radar, a higher acceptance of the latter is crucial for further upside. Next, the June 27 high of $1,841 comes into picture.

With Death Cross, however, in the game, any rise in gold prices is likely to be short-lived. The 50 DMA cut the 200 DMA to the downside on Monday, flashing a bearish signal.

The 14-day Relative Strength Index (RSI) is slightly higher but below the 50.00 level, indicating a ‘bounce sell’ approach to trading the metal.

Gold bears need a daily close below the $1,800 mark to resume declines towards critical support at $1,785, below which the $1,780 figure will be tested.

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