XAU/USD Seeks Range Breakout Ahead of Fed Minutes

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Asian markets are trading mixed, ignoring the positive close on Wall Street overnight. A weaker-than-expected Caixin services PMI from China rekindles concerns about economic growth, affecting sentiment around domestic equities.

The negative shift in market sentiment helps limit the fall of the US Dollar while keeping the price of gold slightly defensive.

However, the drop in gold prices remains limited, as US Treasury yields continue to suffer from the dovish comments made by Fed Chairman Jerome Powell on Tuesday at the European Central Bank (ECB) Forum on Central Banking in Sintra. US 10-year Treasury yields fell to 4.43% on Tuesday after one of their largest daily gains of the year on Monday.

Although Powell celebrated the recent inflation data, which clearly points to a disinflationary path, he quickly added that he wants to see more before being confident enough to start cutting interest rates.

Markets slightly increased their bets on a rate cut in September after Fed Chairman Powell acknowledged progress on disinflation, perceiving his comments as dovish. Currently, markets see a 67% chance of the Fed cutting rates in September, slightly higher than the 63% seen before Powell’s comments.

The renewed dovish expectations from the Fed could continue to provide “buy the dip” demand for gold prices. This is also supported by the latest report from the World Gold Council (WGC), which showed a net purchase of 10 tonnes of gold by central banks in May.

All eyes are now on the US ADP Employment Change report after the Job Openings and Labour Turnover Survey (JOLTS) on Tuesday showed that job openings increased to 8.14 million at the end of May, up from 7.92 million job openings in April. The ADP data is expected to show an increase of 160K private sector jobs in the US last month, compared to a rise of 152K in May.

Gold Price Technical Analysis: Daily Chart

With the 14-day Relative Strength Index (RSI) flirting with the 50 level and gold prices defending the 21-day Simple Moving Average (SMA) at $2,328, risks appear evenly divided for traders.

Gold buyers need a sustained break above the 50-day SMA barrier at $2,338 to resume a significant recovery from the monthly low of $2,287. The next upper barrier is seen at the psychological level of $2,350, above which the two-week high of $2,369 could be challenged.

Conversely, if the resistance-turned-support of the 21-day SMA at $2,328 fails to maintain strength, sellers could extend their control to test this week’s low of $2,319. The $2,300 threshold will come into play if the selling momentum strengthens. The next strong support aligns with the June low of $2,289.