Gold gained some positive traction on Thursday, albeit lacked any follow-through and remained well within the striking distance of a three-week low touched in the previous day. The US dollar witnessed some profit-taking following the recent strong runup to the highest level since July 2020. This, in turn, was seen as a key factor that extended some support to the dollar-denominated commodity. Apart from this, concerns about the economic fallout from the rising number of COVID-19 cases and the imposition of fresh lockdown measures in Europe further underpinned the safe-haven gold. That said, stable performance in the equity markets, along with hawkish Fed expectations kept a lid on any further gains for the non-yielding yellow metal.
The markets seem convinced that the Fed would be forced to tighten its monetary policy sooner rather than later to contain stubbornly high inflation. The bets were reinforced by Wednesday's release of the US PCE Price Index, which accelerated to a 30-year high in October. Adding to this, the minutes of the November FOMC meeting revealed that were open to speeding up the tapering of the bond-buying program and moving quickly to raise interest rates if high inflation persists. The Fed funds futures indicate the possibility for an eventual rate hike move by mid-2022 and a high likelihood of another raise in November. This warrants some caution for bullish traders and before confirming that gold prices might have bottomed out in the near term.
The fundamental backdrop remains tilted firmly in favour of bears, though relatively thin liquidity conditions on the back of the Thanksgiving holiday in the US held back traders from placing fresh bets. Even from a technical perspective, gold, so far, has managed to defend a short-term ascending trend-line support extending from the September monthly swing low, around the $1,722 area. This further makes it prudent to wait for a convincing break below the mentioned support before positioning for any further depreciating move.
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