During Wednesday’s Asian trading hours, the precious metal succeeded in stopping its overnight decline, drawing some modest bids around the $1,790 level, as the intense pace of the virus-related hospitalizations in the US in one year and a 67% hike in the number of covid-related deaths in the last two weeks raised doubts over the US economy. This, in turn, exerted some downside pressure on the market trading sentiment, and provided a fairly good lift to safe-haven commodities, including GOLD.

Furthermore, the downbeat US data released recently now seems to have raised doubts about the recovery of the US labor market, fuelling worries about the potential risks associated with the fast-spreading Delta variant of the coronavirus. This was evidenced by a softer tone in equity markets, which aided safe-haven gold prices in recouping their previous losses.

Alternatively, the strength of the broad-based US dollar, backed by rising US Treasury yields, is capping the upside for the yellow metal. The rise in the US dollar was fueled by a sharp increase in US Treasury bond yields, which kept bulls from making aggressive bets and capped any further gains for non-yielding gold. At this particular time, the gold price is trading at 1,797.15, and consolidating in the range between 1,794.42 and 1,801.10.

Delta Covid Variant Fears & US Stimulus Updates

Despite the strong, positive follow-through progress in US Treasury bond yields, the market trading sentiment failed to extend its strong performance of earlier in the day, losing some positive traction, ahead of the European session. Nonetheless, the S&P 500 Futures is showing a mildly optimistic market scenario on Wednesday, having risen by 0.08%, to around 4,520. The risk sentiment was influenced by the recently sluggish US Treasury yields and the slightly better-than-expected COVID figures from New Zealand and China.

Even the prevalent risk-on environment failed to negatively impact the GOLD prices, as the fast-spread of the Delta variant of the coronavirus in the US has raised doubts over the US economy. This, in turn, fueled the safe-haven demand in the market and provided quite a good lift to safe-haven commodities, including gold. The thought of last week’s downbeat US jobs reports and ISM data also put some extra pressure on the market trading sentiment, contributing to the gains in gold. 

In addition to this, the latest difficulties over the Democratic Party-backed stimulus package also played a major role in undermining the sentiment in the market. As per the keywords, “House Republicans could face heightened pressure to vote against a bipartisan infrastructure package when they return to Washington later this month.” In the meantime, “Sen. Joe Manchin (D-W.V.) has personally informed the White House and congressional leaders that he has specific policy concerns regarding President Biden’s $3.5 trillion social spending dream. 

On the other hand, the escalating tension over the Sino-US issue continues to have a bearish impact on the global equity market. This was evident from a bearish tone in the equity markets, which further benefitted the safe-haven metal.

Stronger Dollar Hits Gold Prices & Drags them below 1,800

The broad-based US dollar almost hit a one-week high on Wednesday, against significant peers, buoyed by higher Treasury Yields and a weaker Euro, amid caution before a European Central Bank policy decision. The strong positive follow-through move in the US Treasury bond yields helped the US dollar recover further from the one-month lows it touched, in reaction to the dismal headline NFP print. Furthermore, the benchmark 10-year US government bond yield rose past 1.36%, amid expectations that the Fed might still start rolling back its pandemic-era stimulus in November. 

Apart from this, the uptick in the US dollar was further bolstered by the fears that the Delta variant of the coronavirus could delay global economic recovery. Furthermore, the dollar got some additional lift from the expectations that the Federal Reserve could start tapering stimulus this year, even with COVID-19 infections surging in the US this month. So, the higher US bond yields diminished the appeal of the non-yielding precious metal, while the bullish bias in the US dollar capped the upside for the precious metal.

The markets may remain calmer in the absence of major key data, but COVID and stimulus headlines could keep traders busy. Meanwhile, the comments by New York Fed President, John C. Williams, will be key to watch.

Gold (XAU/USD) Technical Outlook – Brace for a bullish correction

Gold is trading in a bearish trend near the 1,799 level on Wednesday. The precious metal is maintaining in an oversold zone on the 4-hour chart, indicating that investors are becoming fatigued and that bulls may enter the market shortly.

Daily Support and Resistance

S3 1,741.36

S2 1,772.41

S1 1783.46

Pivot Point: 1,803.46

R1 1,814.51

R2 1,834.51

R3 1,865.56

The 1,792 level provides immediate support for gold, and a bearish breach exposes the gold prices to the next support level of 1,781. Immediate resistance for the precious metal remains at around 1,804; if a positive breakthrough occurs, gold prices will be exposed to the resistance levels of 1,816 and 1,827.

Gold has broken through an upward trendline in the 4-hour timeframe, indicating a robust bearish market trend. Given that gold has entered the oversold zone, we can expect a minor bullish correction today. Finally, keep an eye on the 1,804 level, sincea bullish bias prevails above it, and vice versa. Good luck!