Gold recovers swiftly from 1-month lows, upside remains capped near $1600 mark

• Gold witnessed some aggressive short-covering move on Friday.
• A combination of factors should keep a lid on any runaway rally.

Gold quickly reversed an early Asian session dip to over one-month lows and jumped to fresh session tops in the last hour, back closer to the $1600 round-figure mark.

The precious metal managed to find decent support, rather staged a solid intraday bounce from the $1550 region and for now, seems to have stalled this week's sharp corrective slide from multi-year tops.

Given the recent fall of around 9% over the past four trading session, from levels beyond the $1700 round-figure mark, the strong intraday bounce could be solely attributed to some aggressive short-covering move.

The positive move lacked any obvious fundamental catalyst and runs the risk of fizzling out quickly amid a turnaround in the global risk sentiment, which tends to undermine the commodity's safe-haven demand.

A coordinated move by the Fed and BoJ to calm investors’ nerves led a solid recovery in the equity markets, which coupled with rebounding US Treasury bond yields should cap gains for the non-yielding yellow metal.

Meanwhile, a strong positive move in the US bond yields assisted the US dollar to preserve its overnight strong gains and might further contribute towards keeping a lid on the dollar-denominated commodity.

Technical levels to watch