The metal could see deeper losses if the greenback continues to attract safe-haven demand in the coming days

As dollar demand continued to pick up, gold prices retreated to early-December lows on Monday. The precious metal dipped to $1,804 but bounced quickly and turned positive on the day in recent trading. Despite the latest rebound, the fact that the prices slipped to the $1,800 area could be a sign of the market’s readiness to see deeper losses if the greenback continues to attract safe-haven demand in the coming days. 

Of note, US markets are closed for a public holiday today, so thin liquidity conditions could exacerbate price volatility in the near term. Against this backdrop, the US dollar index advanced to the highest level seen in more than a month, nearing the 91.00 handle at the start of the week. Furthermore, the index has exceeded the 50-daily simple moving average for the first time since early-November, adding to the upbeat technical picture surrounding the greenback. On Friday, the dollar saw solid gains amid weak US retail sales data and disappointing quarterly results.

As such, if the US currency continues to attract safe-haven demand, the bullion could extend losses and derail the $1,800 handle in the days to come. If so, the next support levels should be expected at $1,790, followed by $1,765. On the positive side, if the greenback starts to erase recent gains, the yellow metal may regain upside bias and climb back above the 20-DMA that represents the immediate resistance in the $1,842 area.

As for other potential drivers, the Eurozone CPI report is due on Wednesday. If the figures disappoint and trigger a deeper decline in the EURUSD pair, the ascent in the greenback could weigh on the bullion.

In a wider picture, the XAUUSD pair needs to overcome the 20- and 100-DMAs in order to shrug off the current weakness and see a more robust recovery in the medium term. So far, downside risks surrounding gold look limited as the dollar still stays within a broader bearish trend.


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