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Gold price faces a new wave of selling pressure watch support at $1,781 - analysts

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(Kitco News) - The gold market is struggling to find some footing as prices slide further below $1,800 an ounce again and analysts are expecting to see some further pain in the near term.

The gold market continues to digest the White House's news that President Joe Biden will re-nominate Powell to be head of the Federal Reserve. Following the announcement, markets have increased their expectations that the U.S. central bank will tighten interest rates more aggressively in 2022.

December gold prices are lagging near their session lows, last trading at $1,786.50 an ounce, down more than 1% on the day.

According to some analysts, although inflation pressures remain supportive for gold, the precious metal has not been able to withstand growing headwinds from rising bond yields. The 10-year bond yield is currently trading at a one-month high at 1.66%.

Daniel Briesmann, a precious metals analyst at Commerzbank, noted that rising expectations of aggressive monetary policy action have pushed higher real yields.

"We were surprised that the market reacted so strongly to Powell's nomination for a second term. After all, the Fed's future monetary policy path is unlikely to change fundamentally with Powell at the helm," he said.

Briesmann said that he was watching to see if support would hold at gold's 100-day and 200-day moving averages, which both come in just below $1,800 an ounce.

"Just yesterday morning, we had warned that gold's price rise was on shaky ground," he said.

In an emailed comment to Kitco News, Ole Hansen, head of commodity strategy at Saxo Bank, said it is difficult to see when this new selling pressure will end. He pointed out that hedge funds and money managers built up their speculative bullish bets in the last two weeks, following the recent U.S. inflation data, which showed an annual rise of 6.2%, the biggest jump in 31 years.

"There is no point in looking for levels until the speculative long liquidation has run its course," he said. "Unfortunately, it looks like we have some way to go before that is done. From a technical perspective, I will worry quite a bit more if it breaks below 1781."

Looking at market expectations, according to the CME FedWatch Tool, markets continue to see the first rate hike in June. Markets are also pricing in a total of three rate hikes next year.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said that she expects gold prices to continue to struggle as interest rates continue to move higher.

"Because north is the only possible direction for the U.S. yields, gold will likely remain under the pressure of rising yields, and the U.S. dollar may again be a better safe haven if we say any selloff across the equities as well," she said.

Lukman Otunuga, Senior Research Analyst at FXMT, said that he is also expecting to see lower gold prices as bears are once again in the driver’s seat.

“Looking at the technical picture, it is certainly a painful sight to behold with gold falling from five-month highs into the 50, 100, and 200-day Simple Moving Averages. If bears break through this key support region and secure a solid weekly close below $1777, this could signal further downside in the short to medium term,” he said.

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