The gold spot price (XAUUSD) experienced a halt in the recent bullish run as the market repriced an additional rate hike from the Federal Reserve into the market. While recent US economic releases pointed to a moderating economy, the labour report on Friday showed a tight market, forcing traders to price in the likelihood of another 25bps interest rate hike.

On Tuesday, the spot price recovered as the dollar softened ahead of the highly anticipated inflation report and FOMC minutes due Wednesday. Weaker Chinese inflation and ongoing geopolitical tension between the US and China are keeping the bulls on their toes, resulting in a subdued trading session. As the market looks to Wednesday’s reports, XAUUSD traders are preparing for a potentially volatile week in a continued scramble for direction.

Technical

Following the bullish rally, the spot price broke down below the highly topical $2000 per ounce level yet again. While an ascending consolidation channel has formed, trading ranges are likely to be narrow in the Tuesday session.

The spot price broke through the daily pivot support at $1993.578 per ounce, suggesting that bullish momentum persists in the short term as the dollar eases from its recent gains. Psychological resistance at $2003.946 per ounce poses a massive barrier for the bulls to break through, which could lead to consolidation between $1993.578 and $2003.946 per ounce in anticipation of further fundamental backing.

If the inflation statistics and FOMC minutes reveal a dovish tilt, the spot price could again break through the $2003.946 per ounce resistance to continue its path toward channel resistance. In this case, the $2019.583 and $2032.012 per ounce resistance levels could be significant.

Conversely, if the releases fuel the recent hawkish tone that has favoured the US dollar, gold could experience further downside to break down the pivot support at $1993.578 per ounce. After that, the $1989.770 per ounce support level stands in the way of the bears as they could retest channel support at $1984.229 per ounce.

Summary

Traders are showing signs of caution as fear around another 25bps interest rate hike in the US resurfaced. If inflation data on Wednesday supports this view, the bears could retake control toward $1989.769 and $1984.229 per ounce. However, the bulls could stay in the equation, as the Federal Reserve might turn dovish in the latter parts of the year, which could open some attractive upside opportunities over the longer term.

Sources: Koyfin, Tradingview, Reuters