Gold struggled to capitalize on the move or find acceptance above the $1,800 mark and dropped to near two-week lows, closer to the $1,780 region during the early North American session. The US dollar built on its recent bounce from the post-NFP swing lows and climbed to one-week tops. This, in turn, was seen as a key factor that acted as a headwind for dollar-denominated commodities and prompted fresh selling on Wednesday. This marked the third consecutive day of a negative move for the precious metal.
The latest US monthly jobs report released on Friday showed that the economy added the fewest jobs in seven months, dashing hopes for an imminent Fed taper announcement at the September meeting. However, investors seem convinced that the US central bank might still begin rolling back its pandemic-era stimulus in November. This was reinforced by the recent surge in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond shot to the highest level since mid-July, around 1.385% on Tuesday and helped revive the USD demand.
Meanwhile, concerns that the resurgence of COVID-19 cases could derail the economic recovery took its toll on the global risk sentiment. This was evident from a generally weaker tone around the equity markets and extended some support to traditional safe-haven assets. The flight to safety triggered a fresh leg down in the US bond yields, which further helped limit any deeper losses for the non-yielding gold. That said, the lack of any buying interest suggests that this week’s corrective pullback from multi-week tops might still be far from being over.
From a technical perspective, the overnight sharp pullback reaffirmed a strong barrier near the $1,832-34 region and constitutes the formation of a bearish multi-top chart pattern. A subsequent fall and acceptance below the $1,800 mark adds credence to the bearish bias and supports prospects for a further near-term depreciating move. Hence, some follow-through weakness towards the next relevant support, around the $1,778-76 region, remains a distinct possibility.
On the flip side, a sustained move back above the $1,800 mark might trigger a short-covering bounce and lift gold towards the $1,821-22 supply zone. Any subsequent move up might continue to confront stiff resistance near the $1,832-34 region, which if cleared decisively will negate any near-term negative bias. The XAU/USD might then accelerate the momentum towards the $1,853 intermediate resistance en-route the $1.868-70 region.