Selling pressure on the XAU/USD saw it drop to a 4-month low of around $1,689 on Sunday, down from Friday’s close at the $1,762 level. Sunday’s plunge followed a break below the $1,760 mark, which was acting as support.
A spot-check on the XAU/USD shows that it is recovering some of the losses it sustained on Sunday, and is now on the upside at the $1,738.59 level. But, what is going to happen next for gold?
XAU/USD – A Technical Outlook
Gold Daily Chart Analysis
From the daily chart above, it can be seen that gold is retreating from Sunday’s low, which we saw for the last time on March 31. The daily chart also shows that the XAU/USD tried to break below that level again on June 29, before the bulls jumped in to take the price up.
Evidently, gold has been trying to break below, but until now, the bulls have always pushed the price higher. However, all that changed on Friday!
What Happened?
There was no absolute development in the gold market that could have inspired the bearish turn. However, the release of numerous economic reports last week is believed to be behind a strong dollar.
ADP National Employment – The data showed that the US private sector added 330,000 jobs in July. After adding 692,000 jobs in June, 330,000 came short of expectations, but gold still closed lower from opening, as investors waited for the next economic releases, in order to gauge the next moves by Fed.
Jobless Claims – Thursday’s jobless claims, announced by the Department of Labor, came down by 14,000 from the previous week. This gave more clues about the job situation pushing gold lower.
Non-farm Payroll Employment – NFP data was the main market mover on XAU/USD. Friday’s job data showed that NFP employment rose by 943,000 in July, surpassing the expected 845,000. Unemployment also went down by 0.5%. NFP data saw an immediate bearish turn on the XAU/USD, as prices settled at the $1,760 support level.
The Fed has already said that it anticipates tapering of the $120 billion monthly bond purchases once the economy makes “substantial progress” towards maximum employment and the 2% inflation target. With robust job additions and a fall in unemployment, Sunday’s plunge shows how much investors are reading into potential policy tightening by the Fed.
Furthermore, the renewed spread of the Delta variant of the coronavirus across the globe added more strength to the dollar. Combined with the signs of robust economic recovery in the US, this boosted the greenback.
Should You Sell Gold Today
From the analysis above, I maintain a bearish view of XAU/USD. However, given Sunday’s major plunge, bears might be skeptical about taking the pair lower, and a short-term bullish momentum should be expected.
Key Level to Watch
A key level at $1,760, or slightly above, should be the focus for selling gold. This is the previous support level, which could become the resistance for XAU/USD.
A retracement to this level, followed by the formation of bearish signals, will allow the bears to jump in again, aiming for the 4-month low of $1,689 as the target. However, I will continue to monitor potential policy hints by the Fed, so as to gauge potential moves in the XAU/USD.
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