Gold defends $1850 support, US housing data in focus

On Wednesday, gold regained some positive momentum and reversed a part of the overnight sharp intraday pullback from over five-month highs. In the European session, gold held onto modest gains, defending $1,850 ahead of Central bankers' speeches, Eurozone and Canada inflation reports for October and US housing figures.

Bullion is often referred to as an inflation hedge. Yet, after rising on the hope of strong post-pandemic recovery, a possible early Fed policy tightening stalled bulls from more aggressive bets and prevented meaningful gains for non-yielding gold. In addition, elevated US Treasury bond yields pushed the US dollar to a 16-month high on the back of solid employment data and robust inflation figures, further limiting the upside for dollar-denominated commodities.

In October, US retail sales increased 1.7%, the highest gain since March, after increasing 0.8% in September, which beat expectations of 1.4%. Sales surged 21.4% above pre-pandemic levels, even as rising prices reduced consumer sentiment to a decade low in early November. A strong stock market and high house prices, along with savings and wage growth, seem to have buffered the highest annual inflation.

Is bulls' run waning momentum?

On a four-hour chart, gold prices have been trending up since November 3. After pulling back to the 50 WMA, the precious metal hovers between support at $1850 and resistance at $1877. In this case, momentum and price diverge, indicating that the uptrend is waning, and buyers are confronted with resistance at $ 1866.

Divergences between RSI and price confirm a weakening of bullish power.

For the uptrend to resume, bulls would need to break the previous top at the 1877 mark. This could pave the way for moving toward higher targets of $1885 and $1890.

Should the stronger dollar exacerbate the selling pressure on gold, a decisive loss of the $1850 support level would signal the beginning of a new downtrend.

Events of the day

The economic calendar features reports on US housing market data and building permits on Wednesday. The market mostly expects the building permits hit 1.638 million in October, rising from 1.586 previous.

Investors also keep their eyes on Canada Core Consumer Price Index (CPI) MoM due to announce later in the day.

European Central Bank (ECB) President Christine Lagarde is to speak tonight at 20:30 GMT+2.