Gold recovers some lost ground below the mid-$2,000s

Gold price recovers some lost ground below the mid-$2,000s during the early Asian session on Tuesday. The possibility that the US Federal Reserve (Fed) might extend its restrictive stance for longer might exert some selling pressure on the yellow metal in the near term. 

Technical Overview

The daily chart for XAU/USD shows that the risk skews to the downside. The bright metal trades below a flat 20 Simple Moving Average (SMA) while the 100 and 200 SMAs converge around $1,962 with modest upward strength. The Momentum indicator turned flat and consolidates around its 100 level, while the Relative Strength Index (RSI) indicator offers a bearish slope at 49, anticipating another leg lower without confirming it.

The 4-hour chart shows technical indicators bounced from their recent lows but remain within negative levels, limiting the odds for a firmer recovery. At the same time, XAU/USD battles with a directionless 200 SMA while the 20 SMA heads south above the current level, providing dynamic resistance around the $2,040 level.

Support levels: 2,016.60 1,998.65 1,987.20

Resistance levels: 2,040.20 2,052.30 2,065.45

Fundamental Overview

The US Dollar came under selling pressure during American trading hours, helping XAU/USD trim a good part of its early losses. The bright metal trades around $2,030 a troy ounce after falling to $2,016.61, its lowest since mid-December. Financial markets recovered their optimism with Wall Street’s opening, as investors resumed betting the Federal Reserve (Fed) would cut rates as soon as March. Furthermore, a report from Bank of America indicates its analysts believe the central bank may begin tapering the massive Treasury holdings by the same time.

Government bond yields retreated, with the 10-year Treasury note currently yielding 3.97%, down 6 basis points (bps). The 2-year note offers 4.31%, down 7 bps. Stocks, in the meantime, trade mixed. Most United States (US) indexes stand in the green, but the Dow Jones Industrial Average is down 35 bps or 0.09%.

Market participants await a US inflation update. The country will release the December Consumer Price Index (CPI) next Thursday, foreseen at 3.2% YoY, above the previous 3.1%. The core annual reading, on the contrary, is expected to ease to 3.8% from 4% in November.