- Gold continued losing ground for the fifth consecutive session on Wednesday.
- The USD recovered further from multi-week lows and weighed on the metal.
- The stage seems set for a retest of November 2020 lows, near the $1764 area.
Gold witnessed some fresh selling during the early European session and slipped below the $1785 level, or fresh YTD lows in the last hour.
The precious metal extended its recent rejection slide from the very important 200-day SMA and continued losing ground for the fifth consecutive session on Wednesday. The US dollar remained well supported by the recent runaway rally in the US Treasury bond yields. In fact, the key USD Index built on the previous day’s solid rebound from three-week lows, which, in turn, weighing on the dollar-denominated commodity.
The market has been pricing in the prospects for the passage of the US President Joe Biden’s proposed $1.9 trillion stimulus package. The reflation trade pushed the yield on the benchmark 10-year US government bond to the highest level since February 2020, above the 1.30% level. This was seen as a key factor that drove flows away from the non-yielding yellow metal and led to the longest period of decline in almost a year.
Meanwhile, the progress on COVID-19 vaccine rollouts and the slowing pace of infections has been fueling optimism over a quick global economic recovery from the pandemic. This, along with hopes for a massive US fiscal spending plan, continued boosting investors’ confidence. The combination of factors dragged the safe-haven XAU/USD below the previous YTD lows and might have already set the stage for additional near-term weakness.
That said, a softer risk tone – as depicted by a mildly negative sentiment around the equity markets – might hold bearish traders from placing aggressive bets and help limit the downside for the XAU/USD. Nevertheless, the near-term bias remains tilted in favour of bearish traders and supports prospects for a slide back towards November 2020 swing lows, around the $1764 region.
Market participants now look forward to the US economic docket, highlighting the release of the monthly Retail Sales data for some impetus later during the early North American session. Apart from this, the US bond yields might influence the USD price dynamics. Traders might further take cues from the broader market risk sentiment in order to grab some short-term opportunities.
Technical levels to watch
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