Gold prices extending losses from yesterday following a rejection from fresh multi-year highs at the start of the week. The precious metal falls despite the prevailing risk aversion, as traders proceeded to profit taking at attractive levels. As a result, the prices declined from the top around $1,690 as the bulls were scared by the $1,700 psychological level. On Wednesday, gold has settled around $1,630, staying shy of yesterday’s low of $1,625.
Dollar demand has picked up slightly after a short-term dip in a reaction to come fairly dovish statements by the Federal Reserve officials. The recovery in the greenback has been capping gains in XAUUSD at this stage. On the other hand, as long as the coronavirus theme remains in market focus, the bullish potential in the gold market persists. It is possible that the overbought yellow metal will see a deeper correction in the near term before the buyers will reenter the game and send the prices back to long-term highs and probably above the $1,700 handle should the sell-off in the global financial markets continue.
In a wider picture, the rapid spread of coronavirus outside China and its potential negative impact on the global economy continue to support the safe-haven demand for the precious metal that remains close to the seven-year highs as global equities continue to wipe out previous gains and lack the appeal amid rising fears. As such, investor sentiment towards risky assets will continue to set the tone for the metal after the current corrective profit taking. Reports on further spread of the coronavirus across the globe may send gold north again.
The technical picture remains positive despite the recent bearish correction, with downside risks are limited as long as the bullion stays above the $1,600 key support zone. Meanwhile, the immediate support comes around $1,620. On the upside, the XAUUSD pair needs to regain the $1,650 area in order to avoid a deeper correction in the days to come.