Gold prices were sent lower following a period of the Greenback’s robustness, with Spot Gold (XAUUSD) down 1.65% in the prior week. U.S. Inflation rose in January’s PCE Index to validate the potential need for further rate hikes to tame inflation.  

A hawkish outlook will likely lead to capital flows towards the greenback and U.S. treasury bonds at the expense of risk assets such as commodities and metals.  

Technical 

Following a sustained downtrend, price bounced from support at the 1806.51 level and retraced towards the 61.8% Fibonacci Retracement golden ratio at the 1819.62 level. Bulls failed to break above the golden ratio, and bears took their chance.  

Bears currently dominate market sentiment following the bearish rejection of the 1819.62 level. The high volume bearish activity could signal enthusiasm for further downside price action. Bears will look to the 1806.51 level with interest. If a breakdown below the level occurs on high volume, another leg down could be probable with the next level of interest being the 1801.47 Fibonacci Extension level.  

Alternatively, if price approaches the 1806.51 level on declining volumes, it will likely reverse as bearish activity subsides. Bulls will look to the 1819.62 level as a potential take-profit zone if price moves higher.  

Summary 

With bears currently in control, price will likely progress towards the 1806.51 level with less friction. PMI reports expected later in the week will likely provide short-term volatility. If the U.S. economy shows signs of resilience, it will probably boost hawkish activity and drag XAUUSD lower.  

Sources: Reuters, TradingView