XAU/USD consolidates in the $1,800-$1,820 range

  • Gold is stuck in familiar ranges, needs a break of daily support resistance.
  • US dollar correcting recent sell-off and covid risks are a headwind.

Update: Gold prices notch higher on Wednesday and refresh daily high near $1816. A combination of factors contributes to the movement of the precious metal in a closing trade range of $20 for the past three sessions. The US Dollar Index remains off the recent highs but held above the 92.00 mark. A higher USD valuation makes gold expansive for the other currencies holders. Gold prices gained buying interest near the lower levels as investors were spooked by the rapid spread of the Delta variant and its impact on the global recovery. Further, the downside was capped with a decline in US Treasury yields, which fell to 1.15% on Tuesday. The escalating geopolitical tension in the middle-east, after Iran threatened western countries with firm action on any threat to its security. Earlier Tehran was blamed for an attack on an Israeli-managed tanker. 

The price of gold on Tuesday was a touch softer within familiar ranges.

XAU/USD ended down some 0.17% at $1,810.45 and had ranged between a high of $1,815.06 and a low of $1,807.17.  

At the time of writing in Asia, it is flat at $1,810.

The greenback steadied on Tuesday and is holding in familiar ranges as bulls seek a break of 92.20 resistance. 

The US dollar was struggling against the risk-off bloc including the Japanese yen and Swiss franc, as questions about slowing US economic growth and the COVID-19 Delta variant challenged risk appetite. 

The divergence between central banks has been a support for the greenback in recent months and a headwind for gold. This makes Nonfarm Payrolls data key.

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The event could seal the deal for dollar bulls if the data comes in hot and enough to persuade the markets into a buying spree in expectations of a tapering announcement as soon as the Jackson Hole Symposium, Aug 26-28. The event and US data leading up to it will be critical for both the US dollar and precious metal prices. 

US dollar smile theory

Meanwhile, the Fed’s Flexible Average Inflation Targeting gives rise to the prospects of a bullish foundation for gold in the medium term.

The prolonged era of negative real rates, historically, has prompted idle investor capital to seek shelter in gold as a store of value. However,  melting real rates are failing to inspire a speculative boost to the precious metals complex.

Instead, the dollar smile theory is in play as covid risks help to keep the greenback in demand as a safe haven while economic data is forecasted to continue improving. 

Reports of a recently leaked document from the CDC was partly to blame.

According to the New York Times, the reports said that the Delta variant is more transmissible than the common cold, 1918 Spanish flu, smallpox, Ebola, MERS, and SARS. Also, in China, the spread of the variant from the coast to inland cities has prompted authorities to impose strict measures to bring the outbreak under control 

Gold technical analysis

From a technical stance, gold as it hovers around critical 21 and 50 EMA convergence on the daily charts and between familiar support and resistance. A break of either side, 1,834, 1,790, would be a significant development.

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A break of 1,834 will help to chalk out the weekly bullish reverse head & shoulders in development. This will be a compelling feature for the foreseeable future. A 61.8% Fibonacci target of the weekly bearish impulse comes in near 1,850 as the first port of call. However, a break below 1,790 will open prospects of the 1,730s.

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