- Gold price challenges key support amid pre-ECB caution trading.
- Gold price is set to lose even on a likely dovish ECB outcome.
- Daily technical setup continues to flag bearish risks for gold.
After peaking at $1814 in the Asian trading, gold price remained heavy for the most part of Wednesday, falling as low as $1795 before recapturing $1800 on closing. The two-way price action could be traced back to the dynamics in the US Treasury yields, reflective of the changes in the risk sentiment. In the early part of Wednesday’s trading, Delta covid variant concerns hurt the Asian investors’ sentiment, in turn, driving the risk-off flows into the US bonds and the dollar at the expense of the yields. The greenback hit fresh three-month highs above 93.00 vs. its main peers. However, the dollar corrected sharply later in the day amid a major turnaround in the risk sentiment. Strong earnings reports lifted the appetite for riskier assets and eased off pressure on the US rates, knocking off gold price lower. Towards the closing, the US stimulus optimism helped gold to regain the $1800 mark.
With the Treasury yields holding at higher levels this Thursday, despite the US Senate infrastructure bill vote deferred to Monday, gold price is licking its wound around $1800. The US dollar remains broadly subdued, which caps gold’s downside for now. Gold bears are biding time ahead of the European Central Bank’s (ECB) monetary policy decision, in order to extend the downside. After its strategy review two weeks ago, the ECB is likely to make no changes to its monetary policy, although any hints on a potential QE expansion amid the recent covid resurgence could save the day for gold bulls. At the same time, if the dovish outcome lifts the global sentiment, then the downside would remain more compelling for gold price. Markets will also look forward to the US weekly jobless claims and housing data for some trading impetus.
Gold Price Chart - Technical outlook
Gold: Daily chart
Having bounced off critical support around $1795 on Wednesday, gold bears are back at testing the bids there. The 21-Daily Moving Average (DMA) and 100-DMA coincide at that demand zone.
A daily closing below that level is critical to extending the recent downtrend towards the July 12 low of $1792.
If the selling pressure intensifies, then a drop towards the July lows of $1767 cannot be ruled out.
The 14-day Relative Strength Index (RSI) edges lower below the 50.00 level, allowing more room for declines.
On the flip side, should the bulls manage to defend the abovementioned strong support, buyers would then aim for a retest of Wednesday’s high.
The 200-DMA at $1824 will continue to guard the upside. Ahead of that the July 19 high of $1817 could come into play once again.
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