Gold Price Analysis: XAU/USD trades within tight ranges despite downbeat US dollar
- XAU/USD trades within a tight $1885-$1893ish range despite a softer USD.
- Gold traders continue to weigh conflicting themes of increasing vaccine optimism versus the worsening of the pandemic/more accommodative central banks.
Spot gold (XAU/USD) has traded within a tight $1885-$1893(ish) intra-day range on Tuesday. The precious metal currently trades around $2.5 lower, or down just over 0.1%.
XAU/USD pauses for breath following recent vaccine-related volatility, weighs fundamental themes
In wake of significant bouts of volatility over the last few days in response to vaccine updates from Pfizer/BioNtech last Monday and Moderna this Monday (the former saw the bigger, more meaningful reaction, sending the precious metal below $1900 from previously around $1960), gold market participants appear to be taking a breather/biding their time, as they weigh up conflicting market narratives.
On the one hand, much better than expected vaccine over recent days has triggered hopes that the pandemic will be able to be brought under control much sooner and more effectively than previously hopes, ushering in a sooner than previously hoped end to lockdowns and restrictive global economic conditions. This line of thinking is widely accepted as being behind the drop from $1960 to below $1900 seen in XAU/USD last Monday.
However, mass immunization programmes are still some months away and the coming winter in the Northern Hemisphere presents a difficult battle against the virus, particularly in Europe and North America. Europe has already gone back into lockdown, and the US is on its way (state by state). Economic data in these regions is thus expected to indicate a sharp slowdown over the coming months, and possibly even a return to economic contraction. Such conditions arguably ought to support safe-haven gold.
Perhaps more importantly for gold, more central bank accommodation looks to be on the way. The ECB and its governing council member are gearing markets up for a big easing package in December, which likely means more favourable TLTROs, more QE (via the PEPP) and could even mean a small rate cut. Meanwhile, FOMC members have been sounding more and more concerned regarding the worsening state of the US COvid-19 outbreak over recent weeks; in response to today’s week US retail sales numbers, FOMC member Bostic said that if Congress is not forthcoming with fiscal relief, the Fed might have to repurpose its own programmes to get support to where it is needed. Meanwhile, FOMC Vice Chairman Clarida seemingly rose the bar to eventual rate hikes by revealing that the Fed will also consider the participation rate when assessing whether or not the economy is at full employment prior to lift-off.
In a world where developed economy interest rates are all close to or lower than zero for a very long time, gold ought to remain supported.
XAU/USD gains capped by 21DMA, $1900 mark for now
Rangebound XAU/USD continues to struggle as it approaches its 21-day moving average (DMA) at $1898 and the psychological $1900 level. These levels proved solid resistance shortly after the Monday market open, with the precious metal setting weekly highs at $1899. More immediately though, in order to test these levels, gold would have to break out the top of its recent intra-day range which has seen gains capped at $1893.
Above the round $1900 number, there is further resistance in the form of a support/resistance uptrend that has been in play since early November (see the one-hour chart below), as well as spot gold’s 50DMA at $1906.
To the downside, the most immediate resistance is of course the bottom of gold’s recent intra-day range at $1885. A break below that opens the door for a larger drop to test a short-term uptrend linking the 9, 11 and 16 November lows (at roughly $1850, $1857 and $1865 respectively), which ought to come in play around $1870.
XAU/USD one-hour chart
