- Risk-off sentiment helps gold regain ground initially lost to nearly nine-month lows.
- A rally in US bond yields continues to benefit the USD and could limit gains.
- Investors await the release of the monthly US employment report for further directional momentum.
The gold has recovered from an initial drop to new nine-month lows, near $ 1,688, and has risen again near the upper end of its daily range around the $ 1,700 level at the start of the European session on Friday.
The precious metal has extended its recent bearish move and has seen some selling during the early part of the trading action on the last day of the week. Some rally in US Treasury yields. It has turned out to be one of the key factors that has put pressure on the yellow metal, although oversold conditions have helped limit any further decline.
Fed Chairman Jerome Powell disappointed investors on Thursday, saying that the recent surge in U.S. Treasury yields was not a messy move. Powell’s remarks triggered a violent sell-off in the US bond market. This, in turn, pushed the US dollar to a three-month high and put some additional downward pressure on dollar-denominated gold prices.
In the meantime, the bond market crash fueled fears about selling in other asset classes and took its toll on global risk sentiment. This was evident by a weaker tone around equity markets, which offered some support for the safe-haven XAU / USD. Investors also seemed reluctant to open aggressive positions ahead of Friday’s release of US employment data.
The NFP report is expected bolsters prospects for a relatively stronger US economic recovery. This, in turn, will play a key role in influencing USD price dynamics and could provide further directional momentum to XAU / USD. Conversely, a softer figure is likely to be offset by optimism about US President Joe Biden’s $ 1.9 trillion stimulus package.
Given the optimistic US economic outlook, investors have been pricing in a rebound in US inflation. This, coupled with expectations of higher government borrowing to fund the stimulus, should continue to support US bond yields, suggesting that the path of least resistance for XAU / USD remains to the downside. Therefore, any recovery attempt could be considered a selling opportunity.
Gold technical levels