An asset that fails to benefit from good news is exposing its weakness – this adage is relevant for gold. XAU is struggling to hold onto $1,860, despite the drop of US 10-year yields below 1.60%. What would happen if yields return to attack 1.65%? That could erase a substantial chunk of the rally.

momentum on the four-hour chart has turned negative, strengthening the bearish sentiment already triggered by the fact that gold set a lower higher – $1,871 after $1,877.

However, not all indicators are to the downside. XAU/USD still trades above the 50, 100 and 200 SMAs and could still find its feet. It needs to hold above $1,850, a round number and also critical support. Averting a lower low is crucial for bulls.

Below $1,850, the next cusion is $1,845, followed by $1,834.

Resistance is at $1,868, $1,871 and $1,877.

Broadening the view from yields to what lies beneath, the US economy is the way to find an answer to the current weakness. The US dollar is benefiting from strong retail sales and a second Fed survey – this time from Philadelphia – that beat estimates and points to a rebound.

The greenback is adversely correlated with gold and oil, and this correlation has returned to dominate the scene.

Another reason for the fall is buyers' exhaustion – some want to take profits after the substantial move above $1,834, the previous peak.

Looking forward, various members of the Federal Reserve are set to speak, potentially hinting at a faster pace of tightening. In that case, gold would fall. If they stick to their views that price rises are transitory, XAU/USD could rise.

GOLD one wave up

Nov 18 2021