- Gold witnessed selling for the third successive day and retreated further from multi-month tops.
- Hawkish Fed expectations, elevated US bond yields and a stronger USD weighed on the metal.
- Fresh COVID-19 jitters could help limit losses and warrant caution for aggressive bearish traders.
Gold extended last week’s retracement slide from the $1,877 area, or a five-month peak and lost additional ground for the third successive day on Monday. The XAU/USD continued drifting lower through the early North American session and dropped to fresh two-week lows, around the $1,830 region in the last hour. US government bonds witnessed fresh selling amid growing market acceptance that the Fed will need to act more decisively to slow inflation. In fact, the yield on the two-year US Treasury note, which is highly sensitive to interest rate expectations, held steady near the highest level since March 2020. This turned out to be a key factor that drove flows away from the non-yielding yellow metal.
Meanwhile, hawkish Fed expectations, along with rising US bond yields continued acting as a tailwind for the US dollar. This, along with a generally positive tone around the equity markets, further acted as a headwind for dollar-denominated commodities, including gold. That said, concerns about the economic fallout from new COVID-19 restrictions in Europe could benefit the precious metal’s safe-haven status and help limit deeper losses. Austria said that it would be the first country in Western Europe to reimpose a full lockdown to tackle rising infections, while Germany warned that it may follow suit. This, in turn, warrants some caution for aggressive bearish traders.
The US economic docket features the only release of Existing Home Sales and is unlikely to provide any meaningful impetus to gold prices. This might further hold back traders from placing fresh directional bets ahead of this week’s key US macro releases – flash PMI prints on Tuesday, the Prelim Q3 GDP (second estimate), Durable Goods Orders and Core PCE Price Index on Wednesday. Apart from this, the FOMC monetary policy meeting minutes on Wednesday will play a key role in influencing the near-term USD price dynamics and provide a fresh impetus to the commodity. Hence, it will be prudent to wait for a strong follow-through selling before confirming that the metal has topped out already and positioning for a deeper corrective pullback.
Even from a technical perspective, the XAU/USD, so far, has managed to hold its neck above the $1,834-32 strong horizontal resistance breakpoint. The mentioned hurdle-turned-support should act as a key pivotal point for traders, which if broken decisively might prompt some technical selling. Gold might then accelerate the decline towards testing the next relevant support near the $1,810-08 region before eventually dropping to the $1,800 round figure.
On the flip side, the $1,848-50 area now seems to have emerged as immediate strong resistance. Some follow-through buying has the potential to push spot prices beyond the $1,863-65 intermediate hurdle, towards testing a multi-month high level of $1,877 touched last Tuesday.