The ongoing rout in XAU/USD (gold prices in terms of the US dollar) extended for the sixth consecutive session on Tuesday, with the pair hitting the lowest levels since Feb 2010, at 1065.53. Gold prices dropped almost $ 20 sharply yesterday, with the fall accentuated by upbeat US CPI figures which double confirmed a Dec Fed rate rise. The US CPI rebounded 0.2% m/m in Oct, meeting the markets' expectations. Following the data, the US dollar spiked to fresh seven-month highs against its major peers to 99.83 levels as the odds of a 25 basis hike in December rose to 74%, as reflected by the CME Group'sFedWatch tool. Gold tends to suffer in higher interest rate environment as it is a non-interest bearing asset.
In today’s trade so far, the yellow metal stages a recovery fresh 5-year lows reached at 1063.27 in early Asia and rises above 1070 levels, where it now wavers. The gold prices edged higher this session on the back of the latest news of shootout in northern suburbs of Paris and broad based US dollar correction ahead of the FOMC minutes scheduled for release later in the NY session. Besides, a set of housing data from the US will be also reported. However, the economic data is expected to have little impact on the USD. At the moment, gold traders are also seen readjusting their positions and locked-in gains on their shorts before the main risk event for this week, the FOMC minutes. The Fed Oct 28 meeting surprised with a fairly hawkish tone, and hinted towards possible chances for a Dec rate hike. The minutes may reflect the same or could play down Dec lift-off bets. Analysts at Deutsche Bank noted, "We expect the FOMC minutes to be more balanced and much less committed to a December hike than what was inferred from the October communique."
Technicals – Targets $ 1044 on hawkish Fed minutes
On daily charts, the pair trades at more than five-year low and rebounds from extremely oversold conditions on technical indicators, with markets repositioning ahead of FOMC minutes. The daily RSI at 23, turned higher suggesting further scope for advances. Hence, if the FOMC minutes come out more hawkish, in line with the Oct meeting, then the prices could retest fresh multi-year lows near 1063 levels below which selling pressure will intensify taking the prices further towards 1044/41 levels, confluence of Feb 2010 lows and Fib golden ratio – Fib 161.80% retracement of Sept 11-Oct 15 rally. In case the minutes are read more balanced and less committed towards Dec rate lift-off, gold prices would receive fresh life and rally towards the 5-DMA located at 1078.34, and from there to next hurdle at 1085-1090 levels.
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