Gold prices continue to retreat on Wednesday despite the sentiment in the global financial markets deteriorated somehow amid the renewed US-China tensions over Hong Kong. According to the latest news, Trump warned of sanctions on China while the Chinese foreign ministry reaffirmed it will take necessary countermeasures on foreign interference in Hong Kong. As such, investors start to express worries about the fate of the trading deal between the world’s two largest economies.
However, the resurgent risk aversion did little to help the safe-haven precious metal. Gold has been suffering losses since the start of the week and registered two-week lows around $1,704 in recent trading. Now, the market focus is back on the $1,700 psychological level, a break below which will confirm deterioration in the short-term technical picture.
In part, the current decline in gold prices is due to the persisting optimism over the economic recovery amid a gradual reopening of countries after the coronavirus pandemic. Still, the dollar managed to erase some of the losses witnessed yesterday because of its safe-haven status.
It is possible that the bullion will see a deeper retracement from recent multi-year highs before buyers reemerge as the metal looks unattractive for bulls at the current levels. On the downside, the immediate support lies around the mentioned psychological level. Once below, the prices could target the $1,693 region and then extend losses to the $1,680 area if the downside pressure persists. A daily close above $1,700 will negate this scenario but the bearish slope in the daily RSI suggests the yellow metal will likely remain under the selling pressure for some time.
Moreover, should risk-on tone reemerge any time soon, downside risks for gold will increase. Dollar dynamics also matters for the futures, as further recovery in USD index could add to the selling pressure surrounding the metal. On the upside, the prices need to regain the $1,713 level that is the key hurdle for bulls in the short term.