Gold Price Analysis: XAU/USD corrects sharply from all-time highs, dives to $1900 neighbourhood

• Gold on Tuesday witnessed a dramatic intraday turnaround from all-time highs.
• A goodish USD rebound from two-year tops exerted heavy pressure on the metal.
• Technical selling below the $1945 level further aggravated the bearish pressure.

Gold extended its sharp retracement from all-time highs and dived to fresh session lows in the last hour, with bears now eyeing a break below the $1900 mark.

The precious metal witnessed a dramatic intraday turnaround following the Asian session uptick to the $1980 region and snapped seven consecutive days of the winning streak. The pullback was exclusively sponsored by a goodish US dollar rebound from two-year lows, which tends to undermine demand for the dollar-denominated commodity.

Expectations that policymakers have moved closer to agreeing on the next US fiscal stimulus package extended some support to the USD. This coupled with a strong pickup in the US Treasury bond yields provided an additional boost to the buck and further collaborated towards driving flows away from the non-yielding yellow metal.

Given the recent strong rally of over $180 since July 17 swing lows, investors also seemed inclined to take some profits off the table amid extremely overstretched conditions on short-term charts. This, in turn, triggered some aggressive long-unwinding trade and took along trading stops placed near the overnight swing high, around the $1946 region.

However, worries that the economic recovery in the US could be grinding to a halt in the wake of the resurgence in coronavirus cases might extend some support to the precious metal’s safe-haven status. This coupled with speculations that the Fed will make its forward guidance more dovish should further help limit any deeper losses.

Hence, it will be prudent to wait for some strong follow-through selling before confirming that the commodity might have topped out in the near-term and positioning for any further depreciating move. That said, a convincing break below the $1900 mark is likely to accelerate the corrective slide further towards the $1865-60 support area.

Technical levels to watch