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Gold’s Upside Potential Appears Limited Below $1750, FOMC Minutes Next

Gold’s Upside Potential Appears Limited Below $1750, FOMC Minutes Next

Zain Vawda, Analyst

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Gold (XAU/USD) FUNDAMENTAL BACKDROP

Gold continues to consolidate near its weekly low following the failure of yesterday’s upside rally at around the $1750 mark. The precious metal remains cautious in line with the general market mood due to China’s growing Covid woes and the Federal Reserve minutes due later today.

Markets remain cautious this week as Chinas Covid woes continue to plague sentiment. Chinese authorities imposed further restriction in an effort to gain control over the rising number of Covid infections with the lockdown in Guangzhou’s Haizhu district already extended to November 27. Unrest broke out at the world’s largest iPhone plant in Zhengzhou while Beijing resembles a ghost town as citizens are urged to stay home. This has added to investor concerns while highlighting the social and financial toll on the Chinese economy.

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Federal Reserve policymakers continued their hawkish rhetoric this week with the Fed minutes for November due later today. Markets will no doubt be paying close attention to the release especially the statement of economic projections for any clues as to the Federal Reserve’s rate hike outlook moving forward. Before the key event however we do have initial jobless claims, Michigan consumer sentiment, S&P PMI and of course durable goods data to be released. The batch of data releases could provide some volatility and short-term opportunities on the precious metal. The releases arrive just before a two-day Thanksgiving break in the US, which could result in lower liquidity as the week winds to a close.

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From a technical perspective, gold has printed a bullish inside bar candle close on the daily timeframe as it flirts with the weekly low. Yesterday’s daily candle close hints at further upside but any move is likely to depend on the US dollar. The pair remains above the key area of support (September and October highs) around $1730 while the 100-day MA rests around the $1712 area should the precious metal break lower. Gold will need to clear $1750 if we are to push higher and retest the recent highs around $1786 with today’s data releases potentially providing the catalyst.

Gold (XAU/USD) Daily Chart – November 23, 2022

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Source: TradingView

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IG CLIENT SENTIMENT DATA: MIXED

IGCS shows retail traders are currently LONG on XAU/USD, with 68% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment but due to recent changes in long and short positioning, we favor a short-term cautious bias.

Written by: Zain Vawda, Markets Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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