• A weaker dollar assisted gold in regaining positive traction on Thursday.
  • Risk appetite sentiment and a spike in US bond yields could limit any strong gains.
  • Investors are also likely to avoid placing bets ahead of Friday’s NFP.

Gold continued its steady positive trend during the day and surged to a more than one-week top – beyond the key $1,900 level – in the early North American session.

It regained positive traction on Thursday and continued to rise on the back of a good rally this week from 100-day moving average support, near the $1849-48 area. The upside marked the third day of positive movement in the previous four days and was sponsored by a softening tone around the dollar, which tends to support demand for dollar-denominated commodities.

US macro data was mostly upbeat, showing that weekly initial jobless claims fell more than expected to 837,000 from 873,000 previously, with the dollar still under pressure and failing to gain any respite. Also, the core PCE price index and personal spending data came in better than expected, offsetting the slight disappointment in personal income data.

The rally was further supported by a number of hedging bets ahead of Friday’s closely watched monthly US jobs report against the backdrop of concerns over the growing coronary disease. The non-farm payrolls report is likely to give an overview of the health of the US employment picture, which should drive the dollar higher in the short term.

Meanwhile, hopes that US lawmakers can reach a deal by the end of the year boosted investor confidence. This was evidenced by the prevailing optimism around the stock market. A strong recovery in US Treasury yields has further strengthened risk appetite flows, which in turn could limit gains in the unproductive yellow metal.

Therefore, it would be prudent to wait for some strong follow-on buying before confirming that the recent corrective slide is over and positioning for any further appreciation moves. The bulls may then aim to test the next major resistance level near the $1925 area.

Technical levels to watch

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2020-10-01