- Gold’s downside capped, as the US dollar struggles with its recovery.
- Technical indicators signal further correction in the offing.
- US-China tensions, US CPI and fiscal stimulus talks in focus.
Friday’s sharp corrective pullback in Gold (XAU/USD) was mainly driven by the broad-based US dollar rebound, as the US-China tech war escalation and US fiscal wrangling reinforced the haven demand for the greenback. Better US payrolls report, further, aided the dollar recovery from two-year lows. The bright metal dropped nearly 1.50% and settled at $2035 on Friday.
Heading into a fresh week, gold remains on the defensive amid a broadly subdued US dollar. The haven demand for the US currency could resurface, as uncertainty over the US fiscal aid looms even after President Donald Trump signed coronavirus relief orders on Saturday. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin said they were open to restarting COVID-19 aid talks. Further, the escalation in the US-China tensions following the ban on the Chinese tech-titans could likely bode well for the US dollar and cap the upside attempts in gold. Also, investors remain wary ahead of the US CPI release and August 15 trade talks between the world’s two biggest economies.
Short-term technical perspective
Gold: Hourly chart
A potential bear pennant formation is spotted on the hourly chart, which is a bearish continuation pattern. Acceptance under $2023 will confirm the pattern, opening doors for a test of Friday’s low at $2015.
The next support at Wednesday’s low of $2009 will be tested, as the sellers eye for a break below $2000. The hourly-Relative Strength Index (RSI) remains in the bearish territory at 41.00, suggesting more room for losses.
The overbought conditions on the daily chart combined with a bearish outside day candle created on Friday also back the case for further downside.
The XAU bulls need clearance above the bearish 21-hourly Simple Moving Average (HMA) at $2040 to regain control. However, a sustained move above the horizontal 50-HMA at $2050 is needed to revive last week’s bullish momentum for a rally towards the record highs above $2075.
Gold: Additional levels to consider
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