Gold prices struggled to capitalise on gains from earlier in the day as the yellow metal fell below $5,200 per ounce once again.
A stronger dollar weighed on gold and silver prices on Wednesday.
The dollar’s strength makes commodities priced in the greenback more expensive for overseas buyers, thereby limiting demand.
Experts said that the lack of follow-through buying above the $5,200 per ounce level has resulted in subdued prices.
Firm oil prices and inflation concerns weigh
At the time of writing, the COMEX gold contract was at $5,189.86 per ounce, down 1%, while silver slipped 3.1% to $86.825 an ounce.
Oil prices saw a rebound amid market skepticism that the record release of oil reserves, as reported by the International Energy Agency (IEA), could sufficiently counterbalance potential supply disruptions stemming from the Middle East conflict.
“The scale of the proposed IEA intervention is historic, yet its long-term efficacy is being questioned…,” Zain Vawda, market analyst at MarketPulse, said in a note.
The ongoing conflict, now in its second week, involved air strikes between the US and Israel on one side and Iran on the other, resulting in the effective closure of the Strait of Hormuz—a vital chokepoint through which one-fifth of the world’s oil and liquefied natural gas is transported.
Markets are currently focused on key inflation data releases: the US consumer price index (CPI) for February, due later today, and the Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge, set for release on Friday.
An increase in consumer prices is anticipated for February, largely driven by the rising cost of gasoline.
With the ongoing conflict pushing oil prices higher, inflation is expected to see a further rise in March.
Investors, according to the CME FedWatch tool, generally expect the Federal Reserve to hold interest rates steady at the conclusion of its two-day meeting on March 18.
This context is important because, despite gold’s traditional role as an inflation hedge, its appeal tends to diminish when interest rates rise.
Dip-buying opportunity
“Nevertheless, the aforementioned fundamental backdrop seems tilted in favor of bullish traders, suggesting that any corrective slide could be seen as a buying opportunity and is likely to remain limited,” Haresh Menghani, editor at FXStreet, said in a report.
The recent overnight breakout of gold above the rising 100-hour simple moving average (SMA) initially served as a bullish signal, according to Menghani.
However, a lack of continued buying activity suggests caution is warranted. Upside momentum appears to be fading, as indicated by the Moving Average Convergence Divergence (MACD) (12, 26, close, 9) holding below its signal line, accompanied by a negative histogram, despite being in positive-to-flat territory, Menghani noted.
Furthermore, the relative strength index (RSI) (14) has fallen from overbought levels (above 70) to the mid-50s.
This decline signals cooling buying pressure and suggests a potential for a corrective downside move, although the overall market structure remains supportive.
“Initial resistance emerges at the recent intraday high near $5,228, with a break above exposing the next upside leg toward the $5,260 area as bulls attempt to resume the broader advance,” Menghani added.
“On the downside, immediate support stands at $5,190, ahead of a more important floor at $5,160, where prior reaction lows converge with the rising 100-period SMA to form a key demand zone.”
The bullish outlook remains intact as long as the price holds above $5,190, allowing for a potential retest of $5,228.
However, a decisive move below $5,160 would weaken the current bullish structure and likely lead to a further decline toward $5,140, according to Menghani.
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