Gold Price Analysis: XAU/USD extends pullback from $1,975 as risk dwindles

• Gold snaps a two-day winning streak while respecting 21-day SMA as the key short-term resistance for the fourth day.
• Mixed messages concerning the US stimulus, virus news joins the Sino-American tension to weigh on the market sentiment.
• A busy calendar in Asia to entertain ahead of US ISM Manufacturing PMI.

Gold drops to $1,965.66, currently around $1,966.30, amid the early Tuesday morning in Asia. The yellow metal stretched Friday’s gains to $1,976.76 at the week’s start but failed to cross 21-day SMA for one more time amid sluggish risk sentiment. While a light calendar and mixed news can be blamed for the bullion’s inactivity, pause in the latest risk-on mood seems to weigh on the quote off-late.

Consolidation or start of challenging phase for buyers?

While concerns surrounding the coronavirus (COVID-19) vaccine and the US stimulus are still looming, coupled with the multi-month low of the US dollar, gold prices are likely to remain firm for a while. However, the latest trading pattern can be challenging if any positive news relating to the mentioned key risk catalysts arrives.

The latest update suggests that the US Treasury Secretary Steve Mnuchin talks the aid package with the Republicans as leaders of the opposition Democratic Party are less interested in overcoming the deadlock, as blamed by the American diplomat. On the other hand, the receding COVID-19 numbers from the US and vaccine hope battle with the sustained rise in global pandemic cases and likely economic drag due to the same.

On Monday, the US data failed to offer any key direction to the markets but the greenback dropped to the fresh low since May 2018. Elsewhere, better than forecast numbers from China and uncertainty surrounding the Japanese leadership after Shinzo Abe’s resignation gained market attention.

Against this backdrop, Wall Street flashed mixed signals whereas the US 10-year Treasury yields dropped 2.2 basis points to near 0.70%. That said, the S&P 500 Futures currently decline 0.15% after stepping back from the record high of 3,524.50 the previous day.

Looking forward, China’s Caixin Manufacturing PMI and monetary policy meeting by the RBA will join second-tier Japanese data to entertain the traders’ fraternity ahead of the US ISM Manufacturing PMI. While the previous day’s Dallas Fed Manufacturing Business Index marked upbeat prints, any more optimism by the ISM data, expected 54.5 versus 54.2, might help the US dollar to bounce off a multi-month low and adversely impact the Gold prices.

Technical analysis

Even if the sellers are waiting for the bullion’s drop below the previous resistance line, near $1,931 now, for entries, buyers are less likely to make any major moves unless the quote successfully cross the 21-day SMA level around $1,970.