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Gold Faces Headwinds As Interest Rate Fears Favour the Bears

Gold traded lower in late morning European session on Friday, as investors reacted to hawkish Fed comments. The yellow metal was down by 0.10% and traded at $2,022.3 an ounce at 11.30 UTC at the spot market. The trend was reflected at the futures market, where it traded at $2,033 down from the opening price of $2,034. Nonetheless, the commodity is still up +0.47% on the spot market weekly chart and +0.40% on the futures market weekly chart.

Two FOMC members, Fed Governors Lisa Cook and Christopher Waller stated on Thursday that they were for holding high interest rates for as long as inflation remains high. This assertion has seen the US treasury yield bump up, and exerted downward pressure on gold prices.  Yields on both the 10-year and 5-year bonds have steadied above 4.300%, up by one basis point at the time of writing.

Gold and US treasury yields are considered substitute assets in terms of cushioning inflation. Therefore, the precious metal will likely lose in the XAUSD pairing heading into the weekend. Gold prices also face headwinds from the Eurozone, powered by better-than-expected PMI figures. The Eurozone’s Composite PMI beat projections, rising by 1.0 from January’s figure to 48.9.  This has strengthened the euro against the dollar after the US composite PMI came in lower than expected 51.4, down from January’s 52.0. Importantly, it signifies improving economic performance in the EU after its year-long struggles, underpinned by contraction in Germany’s GDP.

Technical analysis

Gold price pivot is around 2024, and the bearish RSI favours downward action. The sellers will likely ride on this momentum to find the first support at 2013. If they succeed in breaking that support, their next target will likely come at 2007. However, if the bulls manage to break above 2024, they will encounter resistance at 2027. Above that point, the next resistance is likely to come at 2030.