- Gold keeps bounce off bi-annual horizontal support amid cautious optimism.
- US Treasury yields step back from three-month top, DXY eases from yearly high to snap four-day uptrend.
- China factory activity contracts for the first time since February 2020, Evergrande, US debt ceiling also in focus.
- Dovish to hawkish Fed: Sounds bearish for gold
Update: Gold (XAU/USD) pares intraday gains, the first in a week, around $1,730 heading into Thursday’s European session. In doing so, the yellow metal fades bounce off a seven-week low as traders remain cautious over the key challenges to sentiment despite initially cheering the intermediate solution.
The yellow metal previously cheered the US policymakers’ ability to avoid the government shutdown, as well as news 74% efficacy of Pfizer’s covid vaccine. However, the major obstacles for the US Democrats, over the debt ceiling and stimulus package, remain unsolved as the deadline approaches.
Additionally, news of Evergrande’s missing coupon payment and fears over China’s economic recovery offer extra challenges to the gold buyers.
Though, easy Treasury yields and the US Dollar Index (DXY) pullback keep buyers hopeful ahead of crucial US Senate session. Also important will be the final readings of US Q2 GDP and updates concerning Evergrande, as well as China.
End of update.
Gold (XAU/USD) consolidates the monthly losses, the heaviest since June, picking up bids to refresh intraday high near $1,730 during early Thursday. In doing so, the yellow metal tracks the US Treasury yields’ pullback to bounce off the short-term key support area.
The US 10-year Treasury yields drop 3.0 basis points (bps) to 1.51%, extending pullback from a six-month high flashed the previous day as traders shift their attention from the Fed tapering concerns to US stimulus and debt ceiling headlines.
US House Speaker Nancy Pelosi is hopeful of a solution and President Joe Biden also turned down his official travel plans to solve the critical issue on hand, which in turn favor investors expecting the diplomats to avoid closure of the US government offices on October 01. Also, the News of AstraZeneca’s covid vaccine showing 74% efficacy in the large US trial seems to have underpinned the latest hopes of overcoming the Delta covid crisis and underpins the S&P 500 Futures to print mild gains by the press time.
However, China’s first factory activity contraction since February 2020 and a second coupon payment default by Evergrande joins Fed Chairman Jerome Powell’s firm support to the tapering to challenge the mood, as well as the gold prices.
That said, the US Dollar Index (DXY) eases from the yearly high around 94.30, snapping a four-day uptrend.
Moving on, headlines concerning China and Evergrande, not to forget Fedspeak and second-tier data from the US may entertain gold traders. However, major attention will be given to the news from the US Senate over the infrastructure spending bill and debt ceiling extension. Should the policymakers manage to tackle the problem, gold may extend recovery moves.
Nearly oversold RSI triggered the gold price rebound from early August levels, also comprising six-month-old horizontal support. However, bearish MACD challenges the recovery moves below the weekly resistance line.
Hence, the commodity is likely to remain on the consolidation mode between $1,721 and $1,738 levels with more support to the bears than otherwise.
Should the quote drops below the key horizontal support near $1,721, its slump to $1,700 and the recent low near $1,687 can’t be ruled out.
On the contrary, an upside break of $1,738 will have to cross a seven-week-old horizontal hurdle around $1,745 before targeting the descending resistance line from September 03 near $1,765.
Gold: Daily chart