Gold prices fell slightly lower on Friday in reaction to the continued gains in the US equity markets and upbeat economic data releases, rounding off this week’s trading with a 0.24 per cent drop for the day.

Despite the recent slowdown in market risk sentiment, the precious metal still managed to close higher on the weekly chart, marking a fifth consecutive week of gains, with the futures market posting a new contract high and spot gold reaching its highest level in almost nine years.

The likely culprit behind the sustained buying demand in gold is the uncertainty caused by the covid-19 pandemic. Economic recovery timeline estimates are getting pushed back as talks of third and fourths waves of infections rattle investor confidence in high risk assets.

Traders should pay close attention to changes in the US Treasury yields as an indicator of short term gold price movement. With increased market uncertainty, traders look towards US Treasury bills for protection, which in turn drives down yields and supports gold prices.

Yields on Friday were left marginally flat, likely due to the increased tension between US and China over trade disputes. Traders might be waiting for an announcement from either side before stepping back in, opening the door to higher volatility in gold prices on Monday.

From a technical perspective, the yellow metal has tested the immediate support level of 1,796.62 on Friday, before settling slightly above it, indicating buyers remain present around the 1,800 mark. Bulls may look to enter conservative long positions between 1,795 and 1,800 for a target of 1,815 in the coming week.

On the flipside, gold remains vulnerable to corrections in the short term given the near overbought conditions seen on the RSI in the past month. The downside target will likely be the 1,780 mark on the upward trendline should sellers breach firmly below 1,790. That said, the main trigger for a sustained fall in gold prices will likely only an  announcement of a covid-19 vaccine.

Support & Resistance Levels:

R3 1,820.00
R2 1,815.42
R1 1,800.00
S1 1,792.62
S2 1,782.75
S3 1,765.00

Analyzed by: Mr. Thibault Moirez, Independent Analyst