What could be Gold’s direction on Tuesday and Thursday during key events?

It does not get busier than this week. But we’re still on Monday, and we’re caution is the name of the game due to growing uncertainty about these events.

In addition, Covid is spreading in China, which has announced further reopening measures, such as dropping the travel surveillance system. While markets want China to reopen, the disorderly nature is worrying. This is weighing on sentiment and XAU/USD down despite a drop in US yields.

US inflation is left, right and center. Core CPI MoM is the critical figure to watch. Basically, the higher it goes, the worse for Gold, the lower, the better. The reaction will likely be massive, but will stall after a few hours as investors gear up for the Fed. A repeat of 0.3% in Core CPI MoM would give Gold a boost, and 0.4% would also be good. A read of 0.5% and especially 0.6% would be negative.

A 50 bps rate hike is fully priced in, and is unlikely to have any effect on Gold. What matters is the Fed’s projection for the interest rate in 2023. It was 4.6% last time, and the question is: will it be upgraded to 5%? A number under this level is Gold-positive, and one above it is Gold-negative. Then, Fed Chair Jerome Powell could trigger more volatility.

Both the Bank of England and the European Central Bank are projected to raise rates by 50 bps, and I suspect the ECB could surprise with a 75 bps move. That would be moderately negative for Gold. To have a significant impact on XAU/USD, both central banks would either have to be hawkish, weighing on Gold, or dovish, boosting it. US events have more impact.

Technically, XAU/USD continues trending higher, holding above the 4h-50 SMA. The round $1,800 level is of interest, but strong resistance is only at $1,808. Support is at $1,781, and more importantly, at $1,764. We could see XAU/USD trading choppily, but We believe the upside trend will prevail.

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