Daily Market Recap -GOLD Loses Momentum as Dollar Bounces Back

Gold dropped by over 2 percent on Wednesday, under pressure from a stronger US Dollar. The rallying greenback has been fuelled by investors betting on a Democrat win in US Senate elections in Georgia.

Spot gold is down 2.27 percent at the time of writing around the 1,905 per ounce mark. Markets are now eyeing the pivotal 1,900 marks which will have to hold in order for gold bulls to hang onto their recent momentum.

Higher US treasury yields accelerated the selloff in gold past the 1,935 level while strong equities performance also reduced the attractivity of holding non-interest-bearing gold. All three major Wall Street indices are in the green, with the Dow Jones leading the pack up by 2 percent in mid-day trading.

Investors are awaiting the confirmation of the Georgia elections which as it stands, looks set to tip the balance in the Senate in favor of the Democrats. With the House of Representatives already in the hands of Democrats, control of the senate will enable the Biden administration to push through larger stimulus packages.

Gold prices are caught between two opposing forces triggered by further monetary stimulus. On the one hand, we have rising inflation expectations over the longer term which should support gold prices, while added the economic stimulus has a positive impact on equities in the shorter term.

From a technical perspective, gold prices failed spectacularly on its test of the 1,962.94-resistance level earlier in the session. The yellow metal retains its upward momentum on the daily chart though the short-term direction has shifted in favor of the bears. Should gold fail to hold above the psychologically significant 1,900 level, we may be in store for a further correction towards the 1,875.55 marks.

The first downside area to assess will of course be the price action around the 1,900 handles. The next support levels can be expected at 0.382 and 0.5 Fibonacci retracement levels at 1,875.55 and 1,848.56 respectively. A move below the 20-day moving average would likely be the end of all of the gold bulls in the short term.

(Chart Source: Tradingview 06.01.2021)

The upside targets to consider in the event of a resurgence in gold prices will be the 1,925 and 1,935 levels while the ultimate bullish target hasnt changed at 1,962.94. The immediate test for gold bulls will be to maintain prices above 1,900.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.