Selling Bias in Gold Dominates, Amid Sideways Channel Breakout – All Eyes on ADP Figures!

During Wednesday’s Asian trading hours, the gold price failed to stop its early-day bearish moves, dropping further to below the $1,757 level. The precious metal was being pressured by the surprisingly hawkish policy decision handed down by the Fed earlier in the month. It was, however, up by 3.3% for the second quarter of 2021. Apart from this, the prevalent selling bias surrounding the bullion price was also sponsored by the talks over US President Joe Biden’s infrastructure spending, coupled with upbeat US data that was released previously. This tends to exert a positive impact on the market trading sentiment, thereby contributing to the losses in the safe-haven yellow metal.

In the meantime, the recently released upbeat data from China and Japan gave the market trading mood a boost, which was seen as another critical factor that kept the safe-haven yellow metal under pressure. Across the ocean, the stronger US dollar, backed by a combination of factors, has also played a significant role in undermining the GOLD prices, as the price of gold typically moves inversely to the US dollar. Conversely, the worsening COVID woes in the Asia-Pacific region, mainly in Australia, Indonesia, Taiwan and Thailand, and concerns over the slower vaccination rates, are probing the risk-on market sentiment. This, in turn, has become a critical factor that is helping to limit any deeper losses in the gold price. At the time of writing, the yellow metal price was trading at 1,758.69, and consolidating in the range between 1,757.66 and 1,764.71.

Despite the significant disappointments over the coronavirus (COVID-19) situation, the market trading sentiment managed to extend its positive early-day performance and still flash green during the second half of the Asian session. This was witnessed by the cheerful appearance of Asia-Pacific stocks and gains in the S&P 500 Futures, which tends to highlight the risk-on mood. The reason for the market risk-on mood could be attributed to the current discussions over US President Joe Biden’s infrastructure spending, which had an instant positive impact on the market trading sentiment and contributed to the losses in gold. On the data front, China’s NBS Manufacturing PMI grew past the 50.8 forecast, to 50.9, but lagged behind the previous 51.00. In the meantime, the Non-Manufacturing PMI also stayed below the previous figure of 55.2, despite exceeding the market expectations of 52.7, coming in at 53.5 for June.

On the other hand, Japanese Retail sales grew by 8.2%, surpassing the market expectations of 7.9%. In the meantime, Industrial Production climbed 22.8% in May, compared to 15.8% in the same month YoY, on a low base effect. The figures declined by 5.90% in May on an MoM basis, way below the market expectations of -2.4%. The mildly positive data helped put a bid under the US stocks, which was seen as one of the critical factors that weakened the safe-haven-metal prices.

Dollar Index & Gold Prices

Despite the upbeat market sentiment, the broad-based US dollar succeeded in extending its early-day positive moves, drawing some further bids during the second half of the Asian session. The US dollar started to gain support after the president of the Federal Reserve Bank of Richmond said that the US had made notable progress towards its inflation goals, in order to begin talking about tapering. Furthermore, the upside progress in the US dollar was further bolstered by the upbeat domestic economic readings. The S&P CoreLogic Case-Shiller 20-city Home Price Index climbed 14.9% above the market consensus, coming in at 14.5%. In addition to this, the increasing optimism concerning US President Joe Biden’s further stimulus plans also favored the USD bulls. Conversely, the gains in the dollar could be short-lived, as the upbeat market mood tends to weaken the safe-haven assets, including the greenback. Anyhow, the prevalence of the stronger US dollar turned out to be one of the key factors that kept the gold prices under pressure, as the price of gold is inversely related to the price of the US dollar.

Alternatively, the worsening coronavirus situation in the Asia-Pacific zone, mainly in Australia, Indonesia, Taiwan and Thailand, and concerns over the slowdown in the immunization progress, are having an effect on the risk-on market sentiment. This has played a role in limiting the losses in gold. As per the latest report, the Aussie policymakers in Queensland have halted the use of the AstraZeneca vaccine, due to blood clotting issues. Meanwhile, the ever-increasing numbers of COVID-19 cases involving the new strain of the coronavirus, in Australia, have already led to renewed lockdown restrictions in several cities, and the spike in numbers has also triggered a threat to the global economic recovery from COVID-19.

What’s Next?

Looking forward, the market traders will keep their eyes on the US jobs report for June, including non-farm payrolls, which are due on Friday. The ADP non-farm employment change will also be released later in the day, ahead of the report. Meanwhile, Japan Consumer Confidence Data, Housing Starts and Construction Orders data will also be key to watch. Apart from this, the updates over COVID-19 and Fedspeak, not to forget US President Joe Biden’s infrastructure spending plan, will give the gold price new direction.

S3 1,706.89
S2 1,735.29
S1 1,748.24
Pivot Point: 1,763.69
R1 1,776.64
R2 1,792.09
R3 1,820.49

GOLD is trading with a bearish bias at 1,755, violating the support level of 1,762. This level is now working as resistance for the yellow metal, and the closing of candles below this suggests a chance of a continued bearish trend. On the lower side, gold is likely to go after the next support area of 1,751 and 1,731, as the leading and lagging indicators suggest a selling bias. Conversely, the breakout at 1,762 could extend the buying trend until the next resistance area of 1,776.  Good luck!