Gold – XAU/USD Analysis – June 22, 2021

U.S. Fed Chair Powell Testimony in Highlights!

Gold was closed at $1783.65 after placing a high of $1787.45 and a low of $1766.35. After falling for six consecutive sessions, gold reversed its course and recovered a minor portion of its massive decline encountered last week. A minor recovery from its biggest weekly percentage drop since March 2020 came in after a pause in the rally of the U.S. dollar that helped yellow metal recover a small portion of its previous losses. Another reason behind the comeback in precious metal could be its price correction as investors booked profits from their selling positions.

On Monday, the U.S. Dollar Index that measures the greenback value against the basket of six major currencies fell and reached 91.83 handles. The dollar index retreated from its two and half month high level that prompted investors to buy gold instead of declining for six consecutive days. The U.S. 10-year Treasury yields also rose on Monday from a four-month lowest level and raised the opportunity cost of non-yielding bullion.

The rally in the U.S. dollar saw a pause after two senior Fed officials suggested that the central bank could wait with a rate hike until 2023, but it will not stay with the tapering of the stimulus measures. According to the St. Louis Fed President James Bullard, the Fed will need to be ready to make changes to tapering. He referred to the shift needed to the monthly purchase of $80 billion in Treasury bonds and $40 billion in mortgage-backed securities by the central bank. He warned that waiting too long to taper could imbalance the situation and prompt the need for taking extra steps.

The Dallas Fed President Robert Kaplan also said that he anticipated the inflation of 2021 to be at3.4%, which is above the current level of 2.4% predicted by the bank for all of the year. Thus, one of the most hotly disputed issues in the U.S. has become the need for stimulus tapering and when such an exercise might start as inflation has risen above the expectations of the Federal Reserve amid the rapid economic recovery from the pandemic. During its June policy meeting, the Federal Reserve has said that it was looking for an appropriate exit for its stimulus program.

In 2020, the U.S. economy contracted by 3.5% due to the lockdowns imposed by the coronavirus pandemic. Nevertheless, since the inception of the new year, the expectations about the recovery have grown with an expansion of 6.4% in the first quarter. For all of 2022, the fed officials have set the expected growth at 6.5%, and some officials have even set the forecast at 7%.

The recent issue faced by the Fed is the rising pace of inflation that has soared the prices of almost everything from the lows of the pandemic. The Fed has acknowledged price pressures raised by the disturbances in the U.S. supply chains. However, Jerome Powell's top official said that the current inflation level was transitory and will eventually fade as the economy moves toward full recovery from the pandemic. According to some analysts, gold will ultimately return to be treated as an inflation hedge and a safe-haven asset; however, it solely trades as a risky asset.

Gold Intraday Technical Level

Support Resistance

1764.80 1772.05

1760.25 1774.75

1757.55 1779.30

Pivot Point: 1767.50

Gold - XAU/USD - Technical Outlook

On Tuesday, the precious metal gold consolidates at 1,783 level, having consolidated in between a narrow trading range of 1,796 – 1,765 level. On the 4-hour timeframe, gold has already completed 61.8% Fibonacci retracement level, and this level is still intact. On the daily timeframe, the Fibonacci tool is still offering an immediate resistance at 1,795 and 1,822 that's extended by 50% and 38.2% Fibonacci retracement levels. The leading indicator, such as MACD, is still holding below 0, supporting a selling bias in gold. Furthermore, the 50 periods EMA is extending resistance at 1,825 level, and below this, the selling pressure remains strong. Later today, the U.S. Fed Chair Powell Testimony will remain in highlights for further price action in the market. All the best!