Gold prices weakened over the past 24 hours, sending XAU/USD inching closer and closer to the 2021 low of 1676. In fact, July has been a pretty dismal month for the yellow metal so far. If the losses continue at the time of writing, gold is expected to lose 6.4% in July. That would be the worst monthly performance in more than a year.

Surprising to us, the precious metal failed to capitalise on the softer US dollar overnight. The dollar index DXY is in for its worst week since late May, with losses extending through the end of this week. Rosy sentiment in the stock market is likely to push demand away from the haven-linked currency.

Gold tends to be inversely related to the US dollar as well as government bond yields. The latter is largely dictated by what the Federal Reserve does. Aggressive monetary tightening and rising yields have reduced gold’s appeal this year.

A significant change in global monetary policy tightening is likely to be needed to revive the strong demand for gold worldwide, making for a tough road ahead. It might be too much at this point. Today, all eyes are on the European Central Bank, which is expected to raise interest rates.

It has been confirmed Gold has a break below the September 2021 low at 1722, approaching the 2021 low at 1676. The latter could be key support, with the 20-day simple moving average headed lower. This line could serve as resistance in the event of a reversal to the upside, possibly resuming a broader bearish focus. Further losses focus on the 78.6% Fibonacci extension at 1656.

The iG Customer Sentiment (IGCS) sensor shows that about 89% of retail traders are net-long. The IGCS tends to behave as a contrarian indicator. Since the vast majority of investors are bullish, this suggests that prices may continue to fall. Bearish exposure is down 3.98% and 21.26% from yesterday and last week, respectively. With this in mind, the combination of current sentiment and recent changes suggests a stronger bearish bias to the opposite trade.