Gold extends losses from last week’s highs and holds at fresh one-week lows registered on Thursday around $1302. As such, the precious metal has settled within striking distance from the psychologically important support at $1300. The bullion now faces a stark choice: to hold above this level or to speed up its bearish correction on a break lower.
The selling pressure comes from a stronger dollar. The USD index is hovering around a two-week high today, rising nearly across the board after a deep sell-off amid Fed’s dovish shift last week. The yellow metal is pressured by lower liquidity in the markets as Chinese markets which are closed for the Lunar New Year holiday this week. On the other hand, there is downside momentum capped by the lingering worries over slowing global economic growth, the risk of another U.S. government shutdown, Brexit uncertainty and investor cautious tone ahead of another round of U.S.-China trade talks due next week.
The trade negotiations will come into market focus in the days to come, and lack of substantial progress towards a deal could sparkle risk aversion across the global markets. Such a scenario will play into gold’s hands. In the short term, however, the downside risks persist. A break below $1300 could fuel more aggressive profit-taking.