The XAU/USD pair (gold prices in terms of the US dollar) rose sharply on Monday, although fell a whisker short of August 24 highs. The prices clinched fresh seven-week highs at 1169.11 levels after the gold bulls cheered the increased talks of Fed’s inaction until March 2016. Moreover, the US dollar continued its sell-off following the dovish Fed minutes while markets flocked to safety ahead of the series of key China macro releases due for release later this week ahead. As anticipated, the prices failed near the 1170 region (Aug 24 High & Fib 127.20% retracement of the Sept 24-Oct 2 decline) and turned lower towards 1162 at close, although held above the 1160 threshold.
As for today’s trade in running, XAU/USD has erased entire previous gains and remains deep in the red near 1157.50 levels, having corrected lower after the recent 2-day rally. The yellow metal dropped mainly on the back of profit-booking after the prices peaked at two-month highs. Also, bigger-than expected drop in the Chinese import data raised demand concerns for the bullion from the world’s largest gold consumer, weighing heavily on the prices. The gold prices are likely to resume their upward momentum in the day as the US dollar is expected to remain subdued amid lack of fresh triggers while falling treasury yields is also expected to support the higher-yielding gold. At the moment, the benchmark 10-year yields are down-2.12% at 2.054% while the 2-year yields drop -2.48% to 0.629%.
Technicals – Is the correction losing steam?
On daily charts, the pair is seen recovering from daily lows reached at 1153.09, just ahead of the bullish 5-DMA located at 1152.20. The prices have managed to rise above the Fib 100% retracement (of the same fall) at 1157.02 and now head for a retest of daily highs posted at 1163.86. Above the last the prices would climb further towards 1169-1171 region, a strong resistance zone where Oct 12, Aug 24 High & Fib 127.20% retracement coincide.
A failure to break beyond the last, the prices could revert towards 1152-1153 levels (daily lows & 5-DMA), below which floors would open for a test of 1149-1150 levels - the symmetrical triangle resistance-turned support. The daily RSI aims lower, although remains in the bullish territory, which might indicate that the rally may resume in the day ahead.
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