XAU/USD (gold price in terms of USD) consolidated around 1220 levels almost through the European session on Tuesday, before a fresh bid-wave caught the bullion and pushed the rate as high as 1243.06 in the American session. The prices broke the consolidative mode to the upside after Fed Chair Yellen delivered dovish comments on the monetary policy outlook. Yellen warned "caution in raising rates is especially warranted," while further added that "Fed has considerable scope for stimulus if needed." This triggered a fresh sell-off in the US dollar across the board and hence, boosted the bids for the USD denominated precious metal. Gold tends to benefit in a low interest rate environment as it is a non-interest paying investment asset.
As for today’s trade so far, the yellow metal once again ran into the strong resistance placed near 1245 levels and retreated lower back below 1240 barrier, displaying a choppy trend so far this session. The prices although remain supported on the back of broad based US dollar selling, as markets continue to weigh Fed rate hike prospects this year, especially after the dovish remarks from Yellen the day earlier. Further, markets have appear to price-in a weak US ADP jobs print in the upcoming NY session and hence, prefer to surrender the US currency in favour of the safe-haven gold. The US ADP non-farm employment change report is considered a precursor to the highly influential official payrolls data due for release on Friday.
Technicals – A break above $ 1245 likely on downbeat US ADP data
Gold displays a potential falling channel formation on the daily charts and faces strong hurdle at the channel trend line resistance placed at 1244.85, almost close to the horizontal 20-DMA upside barrier now located at 1245.60 region. Hence, it can be observed that a strong resistance zone is created around 1245 barrier, which is expected to be broken by the bulls on a weaker than expected ADP jobs report. A break beyond the last would suggest that the prices would resume the rally witnessed last month, especially if the metal gives a daily closing above 1245 levels. Such a move would confirm a falling channel bullish break, targeting the next leg higher towards $ 1280 region. In case the prices fail to break through the key barrier (should ADP numbers beat estimates), we could see a dip towards 5-DMA located at 1226.35. A break below the last, floors will open up for a test of crucial 1207.80/00 (upward sloping 50-DMA/ psychological levels).
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