December 5, 2022 4:16 AM ET
Gold is struggling to capitalize on the intraday upside, falling back from the $1,810 level, or the five-month high it hit on Monday. The XAU/USD pair slipped below $1,800 in the first half of the European session and is now flirting with a technically significant 200-day simple moving average (SMA).
The U.S. dollar is making up for an early dip, recovering slightly from its lowest level since late June, which in turn is seen as a headwind for dollar-denominated gold. The positive monthly labor market report released from the United States on Friday and the positive surprise in wage growth point to the possibility of a further increase in inflationary pressures. This fuels speculation that the Federal Reserve will continue to tighten monetary policy and provides some support to the greenback.
In addition, Federal Reserve Chairman Jerome Powell hinted last week that the top interest rate would be higher than expected. This leads to an intraday rise in U.S. government bond yields, which is seen as another factor benefiting the U.S. dollar and driving capital flows away from the low-yielding gold price.
That said, recent optimism about the easing of COVID-19 restrictions in several Chinese cities is dampening demand for traditional safe-haven assets and appears to be weighing further on the XAU/USD.
However, the downtrend is likely to remain cushioned, at least for now, as bets increase on a relatively smaller 50 basis point rate hike by the Federal Reserve at its upcoming meeting on December 13-14. This should continue to support gold prices and warrant some caution in preparing for a significant corrective setback. Traders are now looking ahead to the US ISM Services PMI, due for release later today in North America, for near-term opportunities.
On the flip side, bulls may now wait for follow-through buying beyond $1,810 before making fresh bets. Gold could then accelerate its positive momentum and test the next important hurdle near the $1,830 zone on the way to the supply zone between $1,843 and $1,845.