XAU/USD: A break below $ 1174-1173 needed for further declines
Gold prices in terms of the US dollar (XAU/USD) failed an attempt to 1100 levels on Monday and dropped sharply towards multi-year lows near 1080 levels. Friday’s barbaric Paris terror attacks spooked markets and investors flocked to safety assets such as the bullion, thus driving the prices as high as 1098.18. However, the European markets reacted calmly to Paris terror news and risk-off sentiment eased heading towards the US session, which boosted the US dollar at the expense of gold. The greenback remained strongly on the bids, despite dismal US Empire State manufacturing index (-10.7 versus -5.3 expected), as focus shifted towards the key US inflation report scheduled for release on Tuesday.
In today’s trade so far, the yellow metal remains relentlessly offered below bearish 5-DMA and attempts a tepid-bounce to 1080 levels, having struck session lows at 1076.83. The prices face double whammy from the strengthening US dollar backed by growing expectations of a Dec rate rise on one hand, while a solid rebound in risk-sentiment on the back of rallying global equities dampened gold’s demand as a safe-haven asset. The USD index rose to fresh seven-month highs at 99.75, recording a 0.22% gain on the day. Further, markets favour the US currency ahead of the crucial US CPI data due for release later in the NY session, which will shed more light on the whether the Fed will hike rates next month. Markets are expecting the US consumer prices may hit 0.1% level y/y in October, following no growth before, while the annual rate, stripped of food and energy, is forecast to reach 1.9%. A better or even in line with estimates inflation reading will confirm a Dec rate hike deal and spur a sharp USD rally across the board.
Technicals – Poised to test Fib 127.20 support
On daily charts, the pair trades near decade low and heads toward extremely oversold conditions on technical indicators, with further southward moves imminent on the breach of the key Fib 127.20% at 1073.73 (retracement of Sept 11- Oct 15 rise). The daily RSI at 24, points lower supporting further room for declines. Hence, if the US inflation data turns out to be USD positive, then the prices could test the above mentioned support, below which selling pressure will intensify taking the prices further towards 1170-1165 (2009 lows).
In case the prices manage to hold 1173-1174 region, a minor recovery could be attempted towards the 5-DMA located at 1083.62 and from there to the daily highs posted at 1085.28. However, the upside seems limited as Dec Fed rate hike is almost a done deal now, which continues to dampen the sentiment around the non-interest bearing gold.
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