Gold prices advanced for a second straight day on Wednesday as the U.S. dollar weakened across the board, weighed by the decline of Treasury yields and an overdue technical correction.
At the time of writing, spot gold, XAU/USD, is trading at the $1,660 area, 1.87% above its opening price, having erased daily losses that saw the yellow metal bottoming out at a fresh cycle low of $1,614 earlier in the session.
The main driver behind the yellow metal’s recovery was the pullback seen in global yields – considered the opportunity cost of holding gold – after the Bank of England unexpectedly announced a plan to purchase gilts to stabilize the U.K. markets.
U.S. bond yields were down by 3% to 5% across the curve on Wednesday, with the 2-, 5-, and 10-Year bond rates at 4.12%, 3.95%, and 3.73%, respectively. The greenback, measured by the DXY index, retreated from a fresh cycle high reached earlier in the session of 114.77, sliding below 113.00 by the end of the New York session.
On the data front, U.S. Pending Home Sales showed worrying results and sparkled recession fears. In that sense, many investors are worried that the Fed is too aggressive in its war against inflation and that the tighter financial conditions are pushing the American economy into a recession.
From a technical standpoint, the XAU/USD holds a short-term negative bias according to indicators on the daily chart, although they point to easing selling pressure. The RSI bounced from oversold levels while the MACD printed a lower red bar, indicating a decreasing selling interest.
If the bulls gather momentum, the next resistance levels are seen at the 20-day SMA at around $1,683, followed by the $1,700 psychological level. On the downside, the following support levels could be faced at $1,615 and the $1,600 psychological mark, followed by the $1,590 zone.