• Gold reverses Friday’s corrective pullback, takes offers to renew daily lows.
• Market sentiment sours as China’s covid conditions, G7 sanctions on Russia join fears of Fed’s faster rate hikes.
• US inflation becomes the key event, risk catalysts may entertain traders.
• Gold and silver outperform stocks and bonds during stagflation

Gold (XAU/USD) portrays the risk-aversion wave during early Monday morning in Europe as it drops below the short-term key support, now resistance around $1,875.

The yellow metal’s latest weakness could be linked to the broad US dollar strength due to the market’s rush for risk-safety, as well as hopes that the Fed won’t be able to reject 75 basis points (bps) rate hikes for long.

Surging covid cases and the resulting lockdowns in China, one of the world’s biggest gold customers, join the Group of Seven (G7) nations’ sanctions on Russia to weigh on the market sentiment. Also weighing on the gold prices are the growing fears of economic stagnation as the supply crunch propels inflation worries.

Fed Chair Jerome Powell’s rejection of 75 basis points (bps) of a rate hike couldn’t keep gold buyers happy for long as Friday’s mostly firmer US jobs report renew concerns that the Fed has room for faster/heavier tightening.

The US Nonfarm Payrolls (NFP) reprinted the 428K figures, if compared to the revised figures for March, by surpassing the 391K forecasts. On the same line, the Unemployment Rate also remained intact at 3.6%.

Following the data, Minneapolis Fed President and FOMC member Neel Kashkari said in a blog post on Medium, “Given that long-term real rates have the greatest influence on the demand for credit, financial conditions are already nearly back to neutral levels.”  The policymaker also said his assessment of the nominal neutral rate of interest is still that it is around 2.0%. It’s worth noting that the President of the Federal Reserve Bank of St. Louis James Bullard reiterated his bullish bias and pushed the Fed towards a 3.5% rate.

With the Fed policymakers’ almost hawkish comments and firmer jobs report from the US, Wednesday’s US Consumer Price Index (CPI) for April will be crucial for gold traders to watch as the same propels the US dollar’s run-up at the 20-year high.

Technical analysis

Gold extends the previous week’s bearish grind for the fourth consecutive time by breaking a one-week-old symmetrical triangle to the downside, previously between $1,892 and $1,875. The metal moves are also backed by steady RSI and non-eye-catching MACD signals, suggesting further weakness.

That said, the odds are against buyers as a downward sloping trend line from April 22 and the 200-SMA, respectively around $1,905 and $1,930, act as additional filters to the north. Even if the gold prices manage to cross the $1,930 hurdle, a horizontal area from late March, surrounding $1,965, will be the key hurdle to watch.

Meanwhile, a clear downside break of the $1,875 becomes necessary for the XAU/USD bears to keep reins. Following that, they won’t hesitate in refreshing the monthly low, currently around $1,850.

Though, an upward sloping trend line from August 2021, close to $1,830 by the press time, will be a crucial support to follow afterward.

Gold: Four-hour chart

Trend: Further weakness expected