Daily Market Recap – GOLD The yellow metal rebounded sharply off 1,670 this week

The initial drop in the yellow metal early last week following by the U.S. employment figures did not trigger a stronger correction in the rest of the week as gold instead recovered quite significantly. This recovery enabled it to book a gain of roughly 0.7% over the last five sessions, while all signs pointed to a second consecutive weekly decline.

This drop was very much related to the rise of the dollar, which remained relatively stable this week. The initial sell-off in the price of gold on Monday was likely triggered by the Asian market buying the U.S. dollar and selling gold in response to the release of the July employment figures last Friday.

Precious metals had fallen due to the strength of the dollar and rising bond yields as gold prices and the greenback have an inverse relationship. When the dollar strengthens against other currencies, gold prices fall as it becomes more expensive in other currencies, which lowers demand. When real yields rise, gold prices fall, and vice versa. In such a scenario, the opportunity cost of holding gold, a non-performing asset, is higher, as investors forego the interest, they could have earned on performing assets.

However, losses on gold were limited after July producer prices in the U.S. rose more than expected, which created some demand for gold as an inflation hedge.

In addition, the dollar and gold continue to benefit from their role as safe havens due to concerns that the global spread of the delta Covid variant could jeopardize the global economic recovery. The seven-day average of new Covid infections in the U.S. reached a six-month high of 122,649 on Wednesday.

From a technical perspective, gold prices have rebounded sharply off of the support line at 1,670 USD. This level remains critical for the rest of the price movement. Below this level, it is likely that a wave of decline would take place towards 1,500 USD.

Above this level, prices could return to the resistance at 1,834 USD. A breach of this level would allow for recovery of 1,917 USD. If prices manage to break above this level, the uptrend would resume.

(Chart Source: Tradingview 15.08.2021)

In the short term, Traders may look to long gold up until the 20-day moving average around the 1,790 marks but should expect some degree of resistance around that level. Looking at the price action in the run-up should provide some early signals of a change in trend.

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.