Although gold was unable to break above key resistance, the underlying tone has remained firm with the fragile tone surrounding risk offering support, especially with the dollar on the defensive.
US equity markets remained under pressure at the New York open on Monday and gold advanced to one-month highs just above $1,260 on weak risk appetite.
There was solid buying support of equities on dips with only slight losses into the close with the S&P 500 index declining only 0.1% on the day.
USD/JPY also found support on approach to the 110.00 level and rallied to the 110.50 area as the dollar’s trade-weighted index found support below the 99.00 level.
Chicago Federal Reserve President Evans stated that a total of 2-3 Fed Funds rate increases remained appropriate for 2017 and that he was still concerned over low inflation expectations.
There were mixed messages from ECB officials with the Lautenschlaeger stating that the ECB should prepare for a change in policy. Chief Economist Praet was more dovish with comments that policy needed to remain very accommodative, although he also stated that policy shifts should be expressed through the discount rate.
The combination of a recovery in equity markets and firmer dollar curbed further defensive demand for gold. There was also significant selling interest around the 200-day moving average resistance area of $1,260 and prices moved lower to around $1,253 into the US close.
Narrow ranges prevailed on Tuesday with a lack of major fresh incentives and gold found support above the $1,250 level as USD/JPY held around the 110.50 area.
Lacklustre conditions also prevailed in European trading and, although a slightly weaker tone for commodity currencies having a slight negative impact on gold, trading ranges remained narrow with consolidation around $1,254 into the US open.
USD/JPY dipped to lows near 110.25 in early US trading which pushed gold to the $1,257 area, although there was no major reaction to the latest US trade data.