- Gold caught some fresh bids on Monday amid the latest COVID-19 breakout in China.
- Resurgent USD demand, elevated US bond yields could cap gains for the commodity.
- Acceptance above 100/200-day SMAs supports prospects for further near-term gains.
Gold attracted fresh buying on the first day of a new trading week and built on the intraday positive move through the early North American session. The latest COVID-19 outbreak in China raised concerns about the imposition of economically damaging lockdowns amid the country’s ‘zero-tolerance approach to the disease. This, to a larger extent, overshadowed the dominant risk-on mood in the markets and turned out to be a key factor that acted as a tailwind for the safe-haven XAU/USD.
Apart from this, the uptick could further be attributed to some technical buying following Friday’s break through the 100/200-day SMAs confluence hurdle. That said, a solid US dollar rebound from near one-month tops might hold bullish traders from placing aggressive bets around the dollar-denominated gold. The greenback was back in demand in the wake of the emergence of heavy selling around the shared currency and was further underpinned by elevated US Treasury bond yields.
In fact, the yield on the benchmark 10-year US government bond held steady above the 1.65% threshold amid growing acceptance that the Fed will tighten its policy sooner than anticipated. The Fed Chair Jerome Powell reaffirmed on Friday that the US central bank remains on track to begin rolling back its massive pandemic-era stimulus. Adding to this, worries that the recent widespread rally in commodity prices will stoke inflation have been fueling speculations about a potential interest rate hike in 2022. This could further collaborate to cap the upside for the non-yielding gold.
Market participants now look forward to the Advance US GDP report, scheduled for release on Thursday for a fresh impetus. This, along with key central bank meetings in Canada, Japan and the Eurozone will infuse some volatility around gold during the second half of the week. In the meantime, the US bond yields will play a key role in influencing the USD price dynamics amid absent relevant market moving economic releases. Apart from this, traders might further take cues from the broader market risk sentiment to grab some short-term opportunities.
Technical outlook
From a technical perspective, Friday’s pullback from an intermediate resistance near the $1,812-14 region, or six-week tops warrants some caution for bullish traders. That said, the emergence of dip-buying near the 100/200-day SMAs confluence supports prospects for additional gains. Hence, a subsequent strength towards challenging the next major hurdle, around the $1,832-34 supply zone, remains a distinct possibility.
On the flip side, the daily swing lows, around the $1,792 region, which coincides with the confluence resistance breakpoint, should continue to protect the immediate downside. Any subsequent fall could find decent support near the $1,782 horizontal zone, which if broken decisively will shift the near-term bias in favour of bearish traders. Gold prices might then turn vulnerable to accelerate the decline towards the $1,760 horizontal support en-route monthly swing lows, around the $1,745 region.