Gold Choppy Session Breakout – Is it a Good Time to Go Long?
Arslan Butt • 3 min read
During the Asian trading hours, the price of the yellow metal extended its winning streak of the previous day and broke the $1,800 level on the day, as the prevalent risk-off mood tends to underpin safe-haven assets, like gold. The market trading sentiment was under pressure due to the previously released downbeat US data, which raised doubts over economic recovery in the United States, and contributed to the decline in the global equity market.
Meanwhile, the weakening US dollar also played a major role in underpinning the yellow metal price, as investors awaited the minutes of the US Federal Reserve’s latest policy meeting. Apart from this, the bullish bias affecting the GOLD prices was also backed by the ever-increasing incidence of the coronavirus (COVID-19), which has put some downside pressure on the global equity market and contributed to the gains in the safe-haven GOLD. In contrast to this, the optimism over US President Joe Biden’s $1.7 trillion infrastructure spending plan continues to help the market trading mood and limit deeper losses. This was seen as one of the key factors that capped any further gains in the gold prices. At the time of writing, the yellow metal prices were trading at 1,798.16, and consolidating in a range between 1,794.01 and 1,802.97.
Downbeat Economic Data from the US & the Eurozone
Despite the optimism over President Biden’s $1.7 trillion infrastructure spending plan, the market trading sentiment failed to put a stop to its sluggish overnight performance. It remained depressed on the day, as the downbeat US key data raised doubts over economic recovery in the country. This was one of the key factors that kept the market trading sentiment under pressure. On the data front, the US Institute of Supply Management (ISM) non-manufacturing purchasing managers index (PMI) was released on the previous day. It came in at 60.1 for June, with labor and raw material shortages probably contributing to the lower-than-expected figure. In addition to this, the German economic data also disappointed investors and raised doubts about the economic recovery from the COVID-19 pandemic in Europe. The economic sentiment index of the German Zentrum für Europäische Wirtschaftsforschung (ZEW) dropped sharply, to 63.3, well below both the forecast of 75.2 and June’s figure of 79.8 .
Coronavirus Concerns & Cautious Mood Ahead of Fed Minutes
The resurgence of the coronavirus (COVID-19) in the Asia-Pacific zone and the outbreak of several variants are weighing continuously on the market trading sentiment. As per the latest report, Queensland, New South Wales (NSW) and Victoria are all expected to extend the virus-related restrictions on activities for one more week, as the country jostles for inoculations. Therefore, the bearish appearance of the US stocks futures highlights the risk-off sentiment, which tends to benefit the safe-haven, gold.
Weaker US Dollar
Despite the risk-off market mood, the broad-based US dollar failed to stop its overnight declining streak, remaining near the three-month high it hit during the previous week. However, the ongoing declines in the dollar could be associated with the previously released downbeat US data, which raised doubts over economic recovery in the USA. Moving on, the traders seem cautious about placing any strong bids ahead of the minutes of the Fed’s June 2021 meeting, which are due to be released later in the day. It is widely expected that they will offer clues on the central’s bank’s policy outlook moving forward. The weaker greenback tends to benefit dollar-denominated commodities, including gold.
Looking ahead, the market traders will keep their eyes on the minutes of the Federal Open Market Committee (FOMC) Meeting, although the minutes are not really expected to offer any clues on the tapering and rate hikes. Meanwhile, it will also be essential to watch the updates on the US stimulus package and the usual risk catalysts, including geopolitics and coronavirus issues.
Gold – XAU/USD – Daily Support and Resistance
Pivot Point: 1,800.73