A weaker dollar could encourage strategic allocation in the yellow metal

Gold prices turned marginally higher on Wednesday following two days of modest losses. The bullion remains in a tight trading range, struggling for a directional bias these days. The yellow metal bounced from the 20-DMA earlier in the day to register local highs around $1,815. Now, the prices are targeting the 200-DMA that arrives at $1,819 today.

In the short- to medium-term, a weaker dollar could encourage strategic allocation in the yellow metal. Besides, low yields are turning in favor of non-yielding gold investment while inflation is supporting central bank gold purchases.

Of note, the fading likelihood of monetary tightening looks supportive in the near term. The problem is that the resurgent pandemic is threatening economic recovery again, adding to potential demand for the bullion. Furthermore, the greenback could see deeper losses as expectations for Federal Reserve policy tightening are waning.

From the technical point of view, the yellow metal now needs to make a decisive break above the mentioned 200-DMA in order to get out of the consolidative range. Then, last month’s highs in the $1,834 area will come into market focus. Gold prices could challenge this region in the coming days if the selling pressure surrounding the dollar intensifies.

As a reminder, Friday’s US jobs report could affect the bullion through the greenback. Weaker-than-expected figures would add to the negative tone surrounding the American currency. In this scenario, the XAUUSD pair would derive support to challenge the mentioned bullish targets. Otherwise, a pullback towards $1,800 or lower could be expected. In a wider picture, the non-yielding metal has a long way to go to late-May highs around $1,916, with the $1,900 figure remaining the key target for investors.


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