As the US dollar falls, gold surges to a 50% mean reversion level.
The Federal Reserve is expected to steer the greenback on Wednesday, so markets are looking to the Fed for guidance.
The price of gold is up more than 1% on Wednesday, as bulls profit from a weaker US dollar. From a low of $1,804.58 to a high of $1,829.88, XAU/USD has risen.
Despite the previous day’s massive inflation data beat, the dollar fell down because Federal Reserve Chair Jerome Powell told Congress that the US economy was “still a ways off” from the levels the central bank desired before decreasing its monetary support.
The previous day, figures indicated that US inflation in June reached its highest level in more than 13 years.
In other news, US producer prices grew more than predicted, registering their greatest annual increase in for over 10-and-a-half years.
Meanwhile, the US dollar continues near 93.50, stopped below 92.80 daily barrier, and remains below its three-month high.
Furthermore, markets remain unconvinced that the Fed is incorrect, putting downward pressure on the dollar.
Fed Powell said at the start of his two-day testimony to Congress that the Fed is confident that recent price rises are linked to the economic expansion and are only temporary.
“While the Fed’s hawkish stance may have taken away the immediate reason for speculators to buy gold, Chinese funds have been buying the dip, with physical purchases also boosting the yellow metal just as it flirted with its pandemic-era uptrend support,” TD Securities analysts said.
“In the meantime, gold’s breakout from its previous trading range may be piqueing the curiosity of traders.” However, during the last 60 days, mean-reversion indications have outpaced momentum signals,” the experts observed.
“Overall, while the favorable positioning slate in precious metals continues to construct a set-up that should eventually serve as a trigger for higher prices, for the time being, this breakout may merely be pointing to skewed flows.’
The price of gold has soared past the previous daily impulse’s 38.2 percent Fibonacci to a 50 percent mean reversion as follows:
This might result in a retest of the preceding highs as a freshly created support structure before continuing on to the 61.8 percent Fibo just below $1,850./n
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