Gold Analysis: Could rise to USD 1200 on dismal US data

Gold futures on Comex broke its side-trend and edged higher ahead of US open, mainly in reaction to sharp losses seen in the US dollar versus its major competitors. The US dollar index which measures the relative performance of the greenback against six major currencies, trades near session lows at 97.05, recording a -0.39% loss on the day. Moreover, gold prices have formed a small doji candle on the daily chart indicating that the yellow metal awaits fresh incentives from the upcoming crucial US durable goods data later in the US session. Meanwhile, gold prices currently trade at 1193.90 levels, up 0.20% on the day, with 1200 levels in sight.

Technically, on the daily chart, gold prices remains capped by a strong resistance zone at 50-EMA located at 1195. However, with most technical indicators signalling a positive short term upside bias, the pair is likely to test 1200 – psychological level on US macro data, beyond a break of major 50-EMA barrier. The daily RSI standing at 55.20 has ticked upwards suggest more room for upside. Moreover, as mentioned earlier, gold displays doji formation which points to a continuation of the underlying bullish tone pushing the gold prices towards 1200 mark.

On the macroeconomic front, durable goods orders data to be released ahead of the US open is likely to be the key driver for further dollar moves. US Durable goods orders are forecast to rise 0.2% in February, slowing down from the 2.8% growth in January. Also, core durable goods orders, which exclude transport, are expected to show a rise of 0.2% in Feb opposed to 0.3% increase in the previous month.

Gold prices are expected to receive a further boost from weaker US durable goods data which may exert additional pressure on the US treasury yields, raising demand for the yellow metal as a higher yielding asset. Dismal durable goods figures may confirm expectations of a delayed interest rate hike not until September. The upcoming release tracking capital goods demand will be closely followed by markets in order to estimate how much momentum the US GDP has lost in the first quarter.  At the moment, both the yields on US 10-yr note and 2-yr note are trading negative, standing at 1.86% and 0.579% respectively.

Moreover, the recent speech by Fed official Evans urging a delay in rate hikes until the first half of next year is expected to keep USD bulls at bay and hence support gold prices.

Chicago Fed President Charles Evans said in remarks prepared for delivery to the Official Monetary and Financial Institutions Forum in London, "I see no compelling reason for us to be in a hurry to tighten financial conditions until then."

Overall, gold is likely to extend its bullish momentum on poor US macro data and may test 1200 levels beyond a sustained break above 50-EMA placed at 1195. Gold bulls are expected to take charge above 1200 levels and push the pair higher to 50-DMA located at 1208 levels. On the other hand, if the US data comes in line with expectations or beats expectations, gold price may witness a dip to 5-DMA located at 1188.70 levels. Next support lies at 1184.70 (March 24 Low) below a break of 5-DMA.