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XAU/USD fell below $1,820 despite China-linked optimism

  • Gold prices struggle to cheer US dollar retreat, firming yields, fears of recession.
  • US-China trade talks, promises to ease Trump-era tariffs on China, support cautious optimism.
  • Chatters of an economic slowdown could put pressure on the metal if US data, Fed minutes look hawkish.

Gold prices (XAU/USD) faded early Asian session strength, hovering around $1,810 after a downbeat start to the week during pre-European session trading on Tuesday.

In doing so, yellow metal prices portray traders’ resolve as China-US dialogue favors a risk-on mood. Chinese Vice Premier Liu’s comments signaled an improvement in US-China trade relations, at least for now, which favored earlier market sentiment. “Both agreed on the need to strengthen communication and coordination of macroeconomic policies between China and the US,” the macro update said of phone talks between China’s Liu He and US Treasury Secretary Janet Yellen.

Fears of a recession took cues from Europe recently as Italy declared a state of emergency amid its worst drought in 70 years. Furthermore, Germany has shown signs of economic distress as energy companies struggle to pay gas prices following the Russia-Ukraine crisis.

Elsewhere, stronger US Treasury yields hinted at expectations of tighter monetary policies ahead for the market, challenging the risk profile.

All in all, the market’s cautious optimism has failed to impress gold buyers, despite modest gains. Therefore, today’s US factory orders 0.5% and 0.3% in May, as well as Wednesday’s Federal Open Market Committee (FOMC) minutes and Friday’s US jobs report for June should be closely watched for clear directions.

Technical analysis

Bullish MACD signals and persistent trading above the two-day-old support line keep buyers optimistic, leading gold prices higher. However, repeated pullbacks from the June 27 50% Fibonacci retracement from the July 01 decline, around $1,813, will test upside momentum.

Even if the quote manages to cross the $1,813 hurdle, the convergence of the 200-HMA, the one-week-old descending trend line and the 61.8% Fibonacci retracement level around $1,820 will challenge the XAU/USD bulls.

If gold breaks above $1,820 on one occasion, it could rally to the mid-June swing high near $1,857.

Alternatively, an immediate support line near $1,808 may precede the $1,800 threshold to block the metal’s short-term downside, a break of which could pull XAU/USD towards the recent swing low near $1,785.

Gold: Hourly chart

Trend: Limited recovery expected

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