Short-Term Bounce Potential at $1800 Psychological Level

GOLD PRICE, CHARTS AND ANALYSIS:

MOST READ: US Dollar (DXY) Technical Forecast: Bullish Dollar Index Facing Technical Challenges in the Week Ahead

Gold (XAU/USD) FUNDAMENTAL BACKDROP

Gold prices declined in the Asian session printing a fresh low around the $1806.50 mark heading into the European Open. We have since seen a modest bounce of some $6 with the precious metal trading at $1812 (at the time of writing). Gold remains delicately poised at the minute with the fundamentals hinting at continued downside while the technicals hint at the potential for a short-term corrective bounce.

Gold bulls have found the overall environment challenging of late as continued repricing of the Fed Funds peak rate (now up to 5.4% compared to 4.8% at the start of February) and rising bond yields weighing on prices. Friday delivered the latest significant piece of data out of the US, the PCE print which is keeping the dollar bid and stoking fears inflation may remain a bigger challenge than previously anticipated. Market participants appear to finally be taking the Fed hawks seriously with 25bps hikes priced in for March, May and June FOMC meetings. The dollar has also benefitted from ongoing geopolitical tensions which keep market participants flocking to the greenback as a safe haven play.

Later today we have US durable goods data out which could stoke some volatility and give the dollar further impetus ahead of comments by Fed policymaker Phillip Jefferson. Data has been a driving force for moves of late particularly in regard to the US dollar and I expect that to remain the case moving forward.

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TECHNICAL OUTLOOK AND FINAL THOUGHTS

From a technical perspective, Gold has printed a fresh yearly low overnight and is eyeing a 5th consecutive day of losses. The bears have been firmly in control since printing the yearly high at $1960 on February 2… What a difference 3 weeks can make as at the time the $2000 handle seemed like the next stop for the precious metal.

Despite the bearish pressure on gold prices, we do have a host of technical factors hinting at the potential of a bounce from around current prices or slightly lower down. The $1800 psychological level may provide some relief while just below that we have the $1796-1794 range which has a host of confluences including the fib retracement, swing low of December 28, 2022, and the 100-day MA. Add to this the fact that RSI has entered oversold territory on the daily timeframe, I think we could get a short-term bounce on the precious metal with $1820 the first spot of significant resistance.

Alternatively, a break below the $1800 and $1796 support areas we could see a test of the 200-day MA around the $1775 handle.

Gold (XAU/USD) Daily Chart – February 27, 2023

Source: TradingView

Written by: Zain Vawda, Markets Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda