- Gold drops as the US dollar rebounds amid cautious market mood.
- Markets reassess the implications of the US fiscal spending.
- Bearish bias intact for XAU/USD while below 21-DMA.
- Focus shifts to the US Markit PMI and President Biden’s speech.
Gold (XAU/USD) witnessed good two-way price movements and settled almost changed at $1869 on Thursday. The yellow metal eased from two-week highs of $1875, as markets resorted to profit-taking after the three-day recovery rally fuelled by the prospects of further stimulus. The uptick in the US Treasury yields on rising inflation expectations and ECB’s inaction also collaborated with the retreat in gold prices. Rejection at the 21-day simple moving average (DMA) further added credence to the pullback in the prices.
Heading into the weekend, the correction in gold will likely to continue, as markets rethink whether the massive US fiscal stimulus could help stimulate the economic recovery. Meanwhile, the UK contemplating full borders closure and the continued covid growth globally have spooked investors, keeping the downside limited in the bright metal. The main drivers remain the US Markit Preliminary Manufacturing PMI and President Joe Biden’s speech for fresh direction on the prices. Biden is due to speak on his administration’s response to the economic crisis.
Gold Price Chart – Technical outlook
Gold: Daily chart
Gold’s daily chart shows that the price is locked in a narrow range, with the upside capped by the 21-DMA at $1876 while the 50-DMA guards the downside at $1859.
A convincing break on either side is needed to determine a clear direction. However, a Doji candle confirmed on Thursday suggests that the buyers lost the recovery momentum.
The 14-day Relative Strength Index (RSI) has slipped below the 50.00 level, also reflective of strengthening bearish bias. A breach of the 50-DMA support could expose the 200-DMA cap at $1848. The next relevant support awaits at $1832, the January 20 low.
Alternatively, a firm break above the 21-DMA barrier is needed for a test of the horizontal 100-DMA at $1883. However, the path of least resistance appears to the downside so long as the XAU bulls hold below the 21-DMA.