Gold Price Analysis: XAU/USD sellers flirt with intraday low around $1,880 amid downbeat sentiment

Update: Gold (XAU/USD) struggles to overcome the day’s low of $1,884.58, down 0.26% intraday, heading into Monday’s European session. Gold traders fail to keep Friday’s recovery moves beyond the previous resistance line from early May as risk-off mood put a safe-haven bid under the US dollar, which in turn has a negative correlation with the gold prices.

Behind the moves are doubts over the Fed’s next action as well as negative commentary over China, from the US and the UK diplomats. While Friday’s downbeat US jobs report tamed reflation fears, US Treasury Secretary Janet Yellen’s comments suggesting higher rates are good for the Fed renewed tapering concerns weigh on the market sentiment. Also, Beijing’s slow recovery from the pandemic and trade relations with Australia, not to forget doubts over covid origin, weigh on the risk appetite.

Amid these plays, US 10-year Treasury yields add 1.6 basis points (bps) whereas the US dollar index (DXY) stays firmer around 90.00 by the press time. The same exert downside pressure on gold that searches for fresh clues for immediate direction.

Previous update: Gold (XAU/USD) extends early Asian pullback to refresh intraday low around $1,887, down 0.23% on a day, during Monday’s initial trading session. Gold traders seem to react to the latest headlines challenging market sentiment to reverse Friday’s recovery moves, backed by surprise negative of the US jobs report. Among them, US Treasury Secretary Janet Yellen’s U-turn on Fed rate and President Joe Biden’s likely meddling in the Brexit issue take the front seat. Also, chatters surrounding US and UK diplomats’ criticism of Beijing, over the covid outbreak and Aussie-China trade tussle respectively, join mixed updates over the coronavirus (COVID-19) and vaccinations to weigh on the market sentiment.

Given the recent risk-off mood putting a safe-haven bid under the US dollar, gold prices may have to trim some more of their latest gains, due to the inverse relations with the greenback. However, the market’s indecision over the Fed’s next move can keep exerting downside pressure on the USD, favoring gold in turn, amid a light calendar moving forward.

Gold prices have started out the week consolidating the firm bid from the end of last's week exodus of the US dollar.

At the time of writing, XAU/USD is trading at $1,890 and flat on the day.

Gold ended 1.1% higher on Friday to $1,891.39 following a recovery from the $1,856.04 lows to a high of $1,896.24 highs after US Nonfarm Payrolls data showed hiring increased below what was expected.

The data is tempering expectations the Federal Reserve will tighten monetary policy sooner, rather than later and investors now figure that the Fed does not need to begin tapering its monthly purchase of $120 billion in bonds. 

Nonfarm payrolls increased by a solid 559,000 jobs last month, helped by higher COVID-19 vaccination rates, but that was below the consensus forecast for 650,000 jobs added in May.

This data comes on the heels of the weekend press quoted Janet Yellen, Treasury Secretary, who commented that President Joe Biden should push forward with his $4 trillion spending plans even if they trigger inflation that persists into next year and higher interest rates. 

This week sees the May US Consumer Price Index release. Following May's reaction in FX and rates markets that looked through the jump in inflation, the same may be true this month.

Analysts at Brown Brothers Harriman explained that headline inflation is expected to decelerate to 5.84% YoY from 6.08% in April. 

''If so, it would be the lowest since March but still well above the 2-4% target range.''

The US dollar will be tested on the European Central Bank as well making for a Super Thursday ahead of the next major event risk of the month which is the FOMC decision. 

The June 16 Federal Open Market Committee meeting will be under the spotlight where the Fed would be expected to say that substantial progress towards its goals has not been achieved.

For gold specifically, it is worth taking into consideration waning demand flows from India and China. India is still battling against COVID and the China SGE gold onshore spreads have also collapsed, potentially due to concerns of more stringent curbs in China.

Despite a weak dollar on the knee jerk of the jobs data, these factors, along with easing inflation fears leaves the door open or additional pain in the yellow metal.

As for positioning, following weeks of large scale short covering in gold, non-commercial length remained largely unchanged in a sign that speculative flows into the complex are slowing, analysts at TD Securities said.

''Notwithstanding, a weak nonfarm payrolls print may have reinvigorated interest from money managers, putting a halt to the deepening pullback on Friday for the time being, but a continued rise in interest will be necessary to avoid a deeper pullback.'

Daily chart

In the following analysis, Chart of the Week: Gold bears lurking below daily countertrend line resistance, it shows that ''the daily chart illustrates the resistance area and the 61.8% correction of the bearish impulse, supported by the 21-day EMA.''

Any deceleration will be encouraging for the bears seeking a continuation to the downside.