Good morning traders,

Prices for the precious metal, GOLD, closed at 1,734.37, after placing a high of 1,775.75, and a low of 1,717.22. Gold extended its losses, dropping for the second consecutive day on Friday, and reaching its lowest level since mid-June 2020. Gold tumbled about 3% on the last day of the week, reaching its lowest level in 8 months, on the back of a stronger US dollar and elevated US Treasury yields. The US Dollar Index (DXY) rose to a one-week high of 90.8, weighing on the gold prices and adding to its losses on Friday. On a 10-year note, the US Treasury yields also rose, coming in at 1.6%, which is a level we have not seen since February 2020, before the outbreak of the coronavirus pandemic.

The yields have been rising continuously on the back of increased inflation expectations, as the markets begin pricing the reopening of developed market economies. Higher inflation has a positive relationship with gold prices, but it also tends to raise treasury yields, which in turn increases the opportunity cost of holding non-yielding bullion, and as a result, gold has suffered. The most recent comments by the US Federal Reserve, stating that they are not concerned by the rising bond yields, also added fuel and supported the rising yields, putting more pressure on the gold prices and dragging them down to an 8-month low.

On the data front, at 18:30 GMT, the Core PCE Price Index for January came in, showing a rise to 0.3%, against the expected 0.1%, which supported the US dollar and added to the losses in the GOLD prices. For January, the Goods Trade Balance showed a deficit of -83.7B, against the expected -83.0B, weighing on the US dollar and capping any further losses in the yellow metal. The Personal Income for January rose to 10.0%, against the expected 9.4%, supporting the US dollar and adding to the downside pressure on gold.

Personal Spending declined to 2.4% in January, against the expected 2.6%, weighing on the US dollar and helping gold recover some of its losses. The Prelim Wholesale Inventories rose to 1.3%, against the expected 0.3%, putting pressure on the greenback and capping any further losses in gold. At 19:45 GMT, the Chicago PMI for February was released, showing a decline to 59.5, against the expected 61.0, which weighed on the US dollar and limited the downside momentum in the gold prices. At 20:00 GMT, the Revised UoM Consumer Sentiment for February came in, remaining in line with the expectations of 76.8. The Revised UoM Inflation Expectations also remained flat at 3.3%.

On Thursday, US President Joe Biden gave the go-ahead for airstrikes against facilities in eastern Syria, which the Pentagon claims are supported by Iranian-backed militias. This action was a response to recent rocket attacks against US interests in Iraq. These developments could raise the risk-off market sentiment and support the gold prices. Meanwhile, on Saturday, President Biden recorded his first legislative win, as the House of Representatives passed the $ 1.9 trillion coronavirus relief package. However, the Democrats are facing challenges in their hopes of using the bill to raise the minimum wage.

According to House Speaker Nancy Pelosi, the American people need to know that their government is there for them, and for that, a package to fight the effects of a pandemic that has killed more than 500,000 Americans and thrown millions out of work, is mandatory.

The Republicans believe that much of the current package is unnecessary, as they claim that only 9% of the total relief package will go directly towards fighting the virus. Now that the bill has been passed, it will weigh on the US dollar and support gold prices on the first day of the week. However, on Saturday, the US Food and Drug Administration issued an emergency use authorization for a third safe and effective vaccine, from Johnson & Johnson, to fight the coronavirus. This represents a step closer to the end of the crisis, and it has given all Americans hope for a quick economic recovery, which will support the US dollar and the risk flows in the market, and this, in turn, will have a negative impact on the gold prices on Monday.

Daily Technical Levels
Support               Resistance
1,757.86               1,789.96
1,740.33              1,822.53
1,716.76               1,840.06
Pivot Point:        1,781.43

GOLD has started to recover, bouncing off over the 1,715 area. The precious metal is going after the 1,754 level, which marks the 38.2% Fibonacci retracement level on the higher side. A bullish breakout could extend buying until the next target level of 1,777, which represents the 61.8% Fibonacci level. A bullish bias dominates over the 1,740.33 level today, which is likely to extend until the pivot point at 1,781.43. Good luck!