- A combination of factors assisted gold to gain some strong positive traction on Monday.
- The prevalent USD selling bias was seen as a key factor that benefitted the commodity.
- Worries about the continuous surge in COVID cases remained supportive of the move.
Gold added to its strong intraday gains and jumped to near two-month tops, around the $1936-37 region during the mid-European session.
The precious metal opened with a modest bullish gap on the first trading day of 2021 and confirmed a bullish breakout through the $1900 mark, representing the top end of a two-week-old trading range. The strong momentum was sponsored by worries about the continuous surge in new COVID-19 cases and the prevalent bearish sentiment surrounding the US dollar, which tends to benefit the dollar-denominated commodity.
Japan saw a record number of COVID-19 cases over the past few days and Prime Minister Yoshihide Suga has said that he would consider declaring a fresh state of emergency in the Tokyo area. Separately, British Prime Minister Boris Johnson also hinted at the possibility of tougher lockdown restrictions in the UK, overshadowing the recent optimism over the rollout of vaccines for the highly contagious disease.
Meanwhile, the USD languished near multi-year lows amid the likelihood of additional US financial aid package and was further pressured by speculations that the Fed will keep interest rates lower for a longer period. This was seen as another factor that provided an additional boost to the non-yielding yellow metal and remained supportive of the strong momentum, marking the fourth consecutive day of a positive move.
However, RSI on hourly charts is already flashing overstretched conditions and has moved closer to the 70.00 mark. This, in turn, makes it prudent to wait for some consolidation or a modest pullback amid the risk-on environment. That said, the near-term bias might have already shifted back in favour of bulls and supports prospects for additional gains ahead of the FOMC monetary policy meeting minutes on Wednesday.
In the meantime, developments surrounding the coronavirus saga might continue to play a dominant role in influencing the XAU/USD. Apart from this, the USD price dynamics will also be looked upon for some short-term trading opportunities. Traders might also take cues from Monday's release of the final US Manufacturing PMI.
Technical levels to watch
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