Gold finally broke down of its intraday consolidative trading range and dropped to the $1,800 neighbourhood, or over one-week lows during the early North American session. Fed Vice Chair Richard Clarida took a more hawkish turn on Wednesday and signalled a move to taper bond buying later this year or early 2022. Clarida further added that conditions for an interest rate hike could be met in late 2022 and forced investors to bring forward the likely timing of a policy tightening. This, in turn, was seen as a key factor that undermined the non-yielding yellow metal. Apart from this, a generally positive tone around the equity markets acted as a headwind and exerted some downward pressure on the traditional safe-haven gold. 

However, a combination of factors might extend some support to the precious metal and help limit any deeper losses, at least for the time being. Investors remain worried that the fast-spreading Delta variant of the coronavirus could derail the global economic recovery. This, along with a modest US dollar weakness, extended some support to dollar-denominated commodities, including gold. The USD struggled to capitalize on the overnight strong rebound from the vicinity of one-month lows and remained on the defensive following the release of the US Initial Weekly Jobless Claims. The USD bulls also seemed rather unimpressed by some follow-through uptick in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond has now moved back closer to the 1.20% threshold.

Meanwhile, the lack of any firm direction points to investors’ reluctance to place any aggressive bets ahead of Friday’s release of the closely watched US monthly jobs data. The popularly know NFP report will influence market expectations for the next policy move by the Fed and drive the greenback in the near term. This, in turn, should assist investors to determine the next leg of a directional move for gold.

Technical outlook

Looking at the technical picture, the overnight rejection near July monthly swing highs validated a bearish double-top pattern formation on the daily chart. That said, technical indicators on the daily chart are yet to confirm the negative bias, warranting some caution before positioning for any further depreciating move. Heading into Friday’s key data risk, gold seems more likely to hold its neck above the $1,800 mark. This should act as a key pivotal point, which if broken decisively could be seen as a fresh trigger for bearish traders. Conversely, a sustained move beyond the $1,832-34 supply zone will mark a bullish breakout and set the stage for an extension of the recent strong rebound from the $1,750 region, or multi-month lows touched in June.

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