- Vaccine progress-driven optimism to cap gold’s recovery.
- 200-DMA is the level to beat for the XAU/USD bulls.
- Sell the bounce likely a key theme ahead of US data.
Gold (XAU/USD) slumped to five-month lows of $1765 on Monday but managed to recover $20 to finish the day around $1776. Gold’s decline was mainly driven by increased expectations of a swifter global economic recovery, as coronavirus vaccine rollout looks imminent and could propel a return of normality to markets early next year. The vaccine-induced optimism dented gold’s safe-haven appeal. US Treasury Secretary Steve Mnuchin’s call to utilize $455 billion from the CARES Act fuelled stimulus hopes and helped the upside attempts in the precious metal. However, the US dollar rebounded on month-end demand, which kept a check on gold’s recovery.
Gold clings onto the recovery gains so far this Tuesday amid a broad-based US dollar retreat, as the optimism over the vaccine and US stimulus combined with strong Chinese Manufacturing PMI boosts the demand for the riskier assets. However, it remains to be seen if the metal sustains the bounce, as the vaccine progress could once again overwhelm the gold traders. Also, of note remains the critical US economic releases, including the ISM Manufacturing PMI, and Fed Chair Jerome Powell’s testimony due later in the NA session. Powell’s prepared text of the testimony voiced his concerns regarding the economic recovery amid the virus resurgence.
Gold Price Chart - Technical outlook
Daily chart
The daily chart shows that the recovery in gold from multi-month troughs is likely to face strong resistance at $1800, which is the confluence of the 200-daily moving average (DMA) and psychological level. Acceptance above the latter on a daily closing basis is critical to unleashing further recovery gains.
The 14-day Relative Strength Index (RSI) has bounced off the oversold region but trades flat below the 50 level, suggesting that the metal is not out of the woods yet. Therefore, the downside remains exposed towards the five-month lows of $1765, below which the July 2 low could be put to test. Further south, the $1750 support is the last hope for the XAU bulls.
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