Gold Price Forecast: XAU/USD stays defensive above $1,800 as coronavirus sours sentiment

Update: Gold (XAU/USD) pares intraday losses around $1,809, down 0.05% on a day, heading into Wednesday’s European session. In doing so, the yellow metal bears the burden of the US dollar strength amid the coronavirus woes. However, the sellers are hesitant amid infrastructure spending updates from US Senators.

Australia and Indonesia are among the economies, unfortunately, badly hit by the Delta covid variant. Japan and the UK are also in the line whereas a US-based research organization raised doubts over Indian covid numbers and jabbing. On the other hand, Democratic Senator Joe Manchin hinted that sides “Not that far apart” in infrastructure talks, ahead of today’s procedural voting. It’s worth noting that the US-China tussles and grim outlook over the Western unlock also put a safe-haven bid under the USD, indirectly weighing on the gold.

Gold (XAU/USD) struggles to defend the $1,800 threshold, grinds lower around $1,809, as of Wednesday’s Asian session trading gains momentum.

The yellow metal refreshed weekly high the previous day before stepping back from $1,825, providing a daily negative closing. In doing so, the gold traders failed to conquer the key technical levels, namely multi-day-old resistance line and 200-DMA.

Optimism surrounding US President Joe Biden’s infrastructure spending bill and hopes of a strong Q2 earnings season could be cited as the key catalyst for the risk-on mood. Also on the positive side were the increasing odds for the Fed policymakers to defend easy money amid Delta covid strain woes.

After US Senate Majority Leader Chuck Schumer announced a procedural vote on the infrastructure spending bill, Minority Leader McConnell said, per Reuters, “Efforts to pass a bipartisan infrastructure bill in the Senate would not be slowed down if Democrats lost a procedural vote.” Further, Democratic Senator Joe Manchin recently hinted that sides “Not that far apart” in infrastructure talks.

Elsewhere, US Housing Starts and Building Permits eased in June, providing another reason for the US Federal Reserve (Fed) to defend the easy money policy when they meet next week. The same helped markets to stay cautious positive.

However, worsening virus conditions in Australia and challenges for the UK’s unlock challenge the optimists. South Australia’s lockdown marks over 50% of the nation witnessing activity restrictions whereas Victoria’s covid count recently jumped from 15 to 22. Further, Tokyo reported 1,387 infections on Tuesday after marking the first below 1,000 numbers in six days whereas UK’s covid cased jumped 41% between July 14 and July 20, per Reuters.

Also negative for the market sentiment were the latest study on the Johnson & Johnson covid vaccine suggesting lesser immunity over the virus strain.

Read: Risk-off: bioRxiv study shows J&J vaccine may be less effective against Delta covid varriant

Against this backdrop, Wall Street benchmarked rallied and the S&P 500 Futures stay mildly bid by the press time. Further, CBOE Volatility Index (VIX) eased from a two-month top whereas US 10-year Treasury yields extend recovery from February lows to 1.22%. Above all, the US Dollar Index (DXY) remains firm for the fourth consecutive day to challenge April’s top.

To sum up, a light calendar and cautious sentiment ahead of Thursday’s ECB, not to forget next week FOMC, gold prices may remain sidelined. However, covid woes and stimulus updates could entertain the commodity traders wherein the US dollar strength could weigh on the quote.

Technical analysis

Gold prices remain trapped between 200-day EMA and a seven-week-old descending resistance line.

Given the receding bullish bias of MACD and steady Momentum line, not to forget firmer US dollar, gold may remain pressured.

That being said, the $1,800 threshold offers immediate support to the metal before dragging it to the monthly horizontal support surrounding $1,795.

It should, however, be noted that the daily closing below $1,795 will make gold prices vulnerable to retest a three-month low, marked in June, near $1,750.

On the flip side, a confluence of the monthly high and 50% Fibonacci retracement of June’s fall, around $1,834-35, add to the upside buyers beyond the stated resistance line near $1,824.

Gold: Daily chart

Trend: Further weakness expected

Update: Gold price is posting small losses, heading for a test of the $1800 mark after the bulla failed to sustain at higher levels yet again. A fresh pick up in the demand for the US dollar across the board, despite an improved market mood, weighs on gold price. The Delta covid variant fears and concerns over runaway inflation continue to loom in the background, rendering the dollar supportive. Meanwhile, positive Treasury yields also add to the downside pressure in gold. Investors, so far, pay little heed to the US infrastructure spending updates. Looking forward, the risk sentiment and the US dollar price action will remain in focus for fresh gold trades. The US data docket is light for Wednesday.

Read: Delta fears remain despite market rebound