Gold Fails to Break Away From Recent Lows As Stronger Dollar Dampens Appeal

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Gold prices inched higher on Wednesday but were still near recent troughs. Spot gold rose 0.2% but was remained only around 0.3% higher than its Friday low. The stronger U.S. dollar made the bullion more expensive and dampened its appeal to investors using rival currencies. The greenback got a boost from the robust U.S. retail sales data for October.

Spot gold is currently trading at $1,857.28 per ounce as of 0815 GMT.

The U.S. Commerce Department reported yesterday that retail sales grew by 1.7% in October. It was the highest monthly gain since March. The solid figures suggest that rising inflation has not dampened consumer spending, though consumer sentiment plunged to a 10-year low. Despite this, Federal Reserve officials assured that they continue to monitor inflation and its impact on households and consumer sentiments.

Harshal Barot, a senior research consultant at Metals Focus, commented that inflation remains supportive of gold prices. But the continued strengthening of the dollar limits its upward momentum. Barot also suggested that the European Central Bank’s (ECB) dovish stance boosts the greenback and weighs on the yellow metal.

On Monday, ECB President Christine Lagarde pushed back calls to tighter policy and argued that it could choke off the eurozone’s recovery. She also said that untimely tightening of financing conditions would represent an unwarranted headwind for the economic recovery. Lagarde added that they are not likely to meet the requirements for a rate hike in 2022.

On the technical front, Reuters technical analyst Wang Tao predicted that spot gold prices might retest a support level at $1,849. A break below that could send the bullion down to $1,831.

DailyFX strategist Daniel McCarthy suggested a potential resistance at $1,916.43 and support at $1,834.14. In the near term, he predicted the resistance at $1,877.15 and support at $1,834.14. He also mentioned the formation of a second Golden Cross yesterday that indicates bullish momentum.

He believes that the direction of the U.S. dollar would dictate the next movement of gold prices. The U.S. will release a lot of economic data this week that could affect the greenback. Comments from Federal Reserve officials also influence the dollar index.