XAUUSD defends $1,800 and rebounds swiftly from one-and-half-month low

July 1, 2022

Gold staged a solid recovery from the $1,800 neighbourhood or its lowest level since May 16.
Softer US PCE inflation data led to a modest USD pullback and extended support to the metal.
Sliding US bond yields, growing recession fears further benefitted the safe-haven commodity.
The prospects for faster Fed rate hikes held back bulls from placing fresh bets and capped gains.

Gold witnessed a dramatic turnaround during the early European session and rallied over $20 from the vicinity of the $1,800 mark or the lowest level since May 16. The momentum pushed spot prices to a fresh daily high, around the $1,825 region, though lacked follow-through buying.

Data released from the US showed that the Core Personal Consumption Expenditures (PCE) Price Index – the Fed’s preferred inflation gauge – moderated to the 4.7% YoY rate in May from the 4.9% previous. Additional detail revealed that Personal Spending growth slowed significantly in May to just 0.2% during the reported month. The softer data, along with the ongoing decline in the US Treasury bond yields, forced the US dollar to trim a part of its intraday gains and offered some support to the dollar-denominated gold.

Apart from this, concerns that rapidly rising rates and tighter financial conditions would hurt global economic growth continued weighing on investors’ sentiment and further benefitted the safe-haven gold. That said, the prospects for aggressive Fed rate hikes held back traders from placing fresh bullish bets around the non-yielding metal. In fact, Fed Chair Jerome Powell said on Wednesday that the US central bank remains focused on getting inflation under control and the market pricing is pretty close to the dot plot.

Even from a technical perspective, the recent repeated failures near the very important 200-day SMA support prospects for a further near-term depreciating move. That said, the emergence of some buying near the $1,800 mark warrants some caution. Nevertheless, the bias still seems tilted in favour of bearish traders and any subsequent move up might still be seen as a selling opportunity. This makes it prudent to wait for strong follow-through buying before confirming that gold price might have formed a near-term bottom.