- Gold price rebounds from fresh six-week lows but upside appears limited.
- USD bounces while Treasury yields rally amid hawkish Fed, Evergrande risks.
- Bear cross on 4H chart shows that downside appears more compelling but Powell holds the key.
Gold price extended its downswing from multi-day highs into the second straight day on Thursday, incurring heavy losses to refresh six-week lows at $1738. The sell-off in gold price was exacerbated by the risk-on market mood, as markets turned optimistic on China Evergrande debt story, with various reports suggesting that the Chinese regulators could come to the rescue of the troubled property developer group. Additionally, progress made on the US $3.5 trillion spending bill combined with the narrative of strengthening economic growth globally added to the upbeat mood, while downing the safe-haven US dollar as well.
The Bank of England (BOE) turned in hawkish, following the US Federal Reserve’s (Fed) and hinted at a sooner-than-expected rate life-off, weighing on the non-interest-bearing gold. On Wednesday, the Fed said the tapering could start ‘soon’ and end around mid-2022. Hawkish central banks’ verdicts, suggesting underlying economic optimism, drove the US Treasury yields to over two-month highs of 1.437%, exerting additional downside pressure on gold price.
On the final trading day of the week, gold price attempts a minor comeback around mid-$1700s, although bulls appear to be lacking follow-through amid jittery markets and a rebound in the US dollar across the board. Looming uncertainty around the fate of debt-ridden China Evergrande keeps investors unnerved, boding well for the dollar at gold’s expense. Meanwhile, the yields on the US bonds remain at elevated levels, which could likely undermine gold’s rebound from multi-week lows. Looking ahead, Evergrande speculations will continue to impact the risk trends while Fed Chair Jerome Powell’s speech will be eagerly awaited for fresh trading impetus in gold price.
Gold Price Chart - Technical outlook
Gold: Four-hour chart
From a short-term technical perspective, gold price is hovering within a one-week-long falling channel, having bounced off the lower boundary of the channel on Thursday.
However, the further recovery in gold price appears elusive amid a bear cross confirmed on the same time frame. The 100-Simple Moving Average (SMA) cut the 200-DMA from above, confirming the bearish crossover.
Additionally, the Relative Strength Index (RSI) continues to trend below the midline, suggesting that the bearish bias remains well in place.
If the channel support at $1736 is breached on a daily closing basis, then a drop towards the $1700 psychological level could be in the offing.
On the contrary, should the recovery find additional legs, the 21-SMA at $1767 could be tested. Further up, the 50-SMA at $1771 will be next in play.
The falling trendline (channel) resistance at $1785 could guard the further upside.
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