XAU/USD moves away from three-week low, remains below $1,800

Update: Gold gained some positive traction during the early part of the trading action on Wednesday and moved away from a near three-week low touched the previous day. The XAU/USD maintained its bid tone heading into the European session and was last seen trading just below the $1,800 round-figure mark. Concerns over the rising number of COVID-19 cases in Europe and the reimposition of lockdown measures turned out to be a key factor that extended some support to the safe-haven precious metal. Apart from this, retreating US Treasury bond yields further benefitted the non-yielding yellow metal, though hawkish Fed expectations and a stronger US dollar kept a lid on any further gains.

The markets have been pricing in the possibility for an eventual Fed rate hike move by July 2022 amid worries about stubbornly high inflationary pressure. Moreover, the Fed funds futures indicate a high likelihood of another raise by November. The market bets were boosted further after Jerome Powell renomination to the role of Federal Reserve chair on Monday. Growing market acceptance about the prospects for an early policy tightening by the Fed assisted the USD to hold steady near a 16-month peak. This, in turn, should act as a headwind for the dollar-denominated gold, warranting some caution for bullish traders. Hence, it will be prudent to wait for a strong follow-through buying before confirming that the recent pullback from the $1,877 area, or a multi-month high touched last week, has run its course.