XAU/USD trades with modest gains above $1,970, lacks bullish conviction

• Gold price catches fresh bids on Friday and reverses a part of the overnight losses.
• A modest downtick in the US bond yields undermines the USD and lends support.
• Geopolitical tensions also benefit the XAU/USD, though the upside seems capped.

Gold price (XAU/USD) attracts some buying during the Asian session on Friday and for now, seems to have stalled the previous day’s retracement slide from the $1,885 region, or over a two-week high. The yellow metal currently trades just above the $1,870 level, up 0.10% for the day, though any meaningful appreciating move now seems elusive.

The US Dollar (USD) takes a breather following Thursday’s higher-than-expected US consumer inflation figures-inspired strong rally and is undermined by a modest pullback in the US Treasury bond yields. Apart from this, the ongoing conflict between Israel and the Palestinian Islamist group, Hamas, turns out to be a key factor lending some support to the Gold price. The upside, however, seems limited in the wake of reviving bets for one more rate hike by the Federal Reserve (Fed) in 2023.

The US Bureau of Labor Statistics (BLS) reported on Thursday that the headline US CPI rose 0.4% in September and the yearly rate held steady at 3.7% as compared to market expectations for a downtick to 3.6%. Meanwhile, the Core CPI, which excludes volatile food and energy prices, matched estimates and eased to the 4.1% YoY rate in September, hitting a 24-month low. The fact that inflation remains well above the Fd’s 2% target supports prospects for further policy tightening by the US central bank.

The outlook, meanwhile, could now act as a tailwind for the US bond yields and the USD, which, in turn, warrants some caution before placing fresh bullish bets around the Gold price. That said, the recent dovish remarks by several Fed officials have been fuelling speculations that the US central bank is nearing the end of its rate-hiking cycle. This keeps a lid on any further upside for the US bond yields and fails to assist the USD to capitalize on the previous day’s solid recovery from a two-week low.

Nevertheless, the mixed fundamental backdrop makes it prudent to wait for strong follow-through buying before positioning for the resumption of the XAU/USD’s recent recovery move from the $1,810 area, or a seven-month low touched last week. The Gold price, however, seems poised to register strong weekly gains for the first time in the previous three. Traders now look to the preliminary Michigan Consumer Sentiment Index for some impetus later during the early North American session.

Technical levels to watch