The yellow metal makes the heaviest losses in over this month, in the earlier of this month. Gold dropped to a nine-week low the previous day before recovering from $1,785. As the broad US dollar gains remain on the table, which weighs on gold prices off-late, the pre-NFP trading lull seems to challenge the commodity trading by press time. That said, the US dollar index (DXY) rises to a fresh high since December 01 while the market’s risk barometer in Asia, S&P 500 Future, also prints mild gains. The yellow metal made the loss due to the firmer dollar.

Boosting greenback, Democrats in the U.S. Senate were poised on Thursday to take a first step toward the ultimate passage of President Joe Biden’s $1.9 trillion COVID-19 relief proposal. U.S. jobless claims decreased further last week, suggesting the labor market was stabilizing.

And further, an ongoing short-squeeze, after short positioning entered the year at historic extremes, the US’ comparatively fast vaccination drive (versus the EU for example),  positive signs coming from the US Congress with regards to the next fiscal stimulus package supports the greenback.

But the Great Lockdown and resulting deep downturn are behind us. When we face the second wave of the pandemic and people become vaccinated, there will be an economic recovery. As well, the Fed has already brought the interest rates to zero – meaning that without the U.S. central bank implementing NIRP, the nominal policy rates reached their lower bound. So, assuming that the Fed will not cut interest rates further and that investors will not expect a further slowing down of the economy, the room for further declines in the real interest rate is limited.

The dollar was set for its best week in three months, while longer-term U.S. Treasury yields rose. “The economic outlook is definitely brighter with vaccines bringing down the daily COVID-19 infections, and the macro data is improving, undermining the demand for precious metals as a store of value”  said an Analysts.

XAU/USD 4 Hour Chart:

Support: 1774.0 (S1), 1754.5 (S2), 1724.2 (S3).

Resistance: 1823.8 (R1), 1854.2 (R2), 1873.6 (R3).

Amidst all the catalysts favoring greenback against the yellow metal, we expect a bearish trend for XAU/USD.