Gold trades with modest losses, just below $1960 level amid risk-on mood

Gold edged lower through the early European session on Monday and dropped to fresh daily lows, around the $1955-54 region in the last hour.

The commodity failed to capitalize on Friday's goodish intraday positive move and witnessed a modest pullback from the $1976-77 supply zone. The upbeat market mood – as depicted by strong gains in the equity markets – was seen as one of the key factors weighing on the precious metal's safe-haven status.

The global risk sentiment got a strong lift on the first day of a new trading week following the release of better-than-expected Chinese Manufacturing and Services PMI prints for August. The data raised expectations of a strong economic recovery from the coronavirus pandemic and boosted investors' confidence.

Apart from the risk-on flow, a modest intraday US dollar rebound from lows further exerted some pressure on the dollar-denominated commodity. However, last week's dovish signals from the Fed might hold the USD bulls from placing any aggressive bets and help limit any deeper losses for the non-yielding yellow metal.

The Fed Chair Jerome Powell – during the highly anticipated speech at the Jackson Hole Symposium – announced a major policy shift and said that the US central bank is willing to allow inflation to run hotter than normal. The Fed prioritized employment over inflation, suggesting that rates could remain lower for longer.

This makes it prudent to wait for some strong follow-through selling before traders again start positioning for an extension of the recent sharp corrective slide from record highs, set on August 7. Conversely, a sustained strength beyond the $1976-77 supply zone will set the stage for a move back towards the key $2000 psychological mark.

Technical levels to watch