Although the Fed decision on the discount rates turned out to be a non-event on Monday, XAU/USD (gold prices in terms of the US dollar) managed to score a low of 1066.49, almost matching our expectations of 1065 levels. The prices continue its downward spiral, after failing near 1075.50 levels where the bearish 20-SMA and horizontal 100-SMA on the hourly sticks posed a strong resistance. Gold prices extended the previous drop on Monday after the USD jumped to the highest levels in over seven months against its major competitors, breaking through the 100 mark. The greenback rallied on the back on expectations that the Fed will lift the discount rates at its closed-door meeting, which would signal a clear lift-off at the Fed Dec 15-16 gathering. However, the pair quickly bounced-off lows and managed to close at 1070 threshold, as the USD retreated after the US factories data came in at 25-month low and surprised markets to the downside.
In today’s trade so far, the yellow metal is attempting a tepid-recovery from NY low and now trades firmer near 1072, with 1075.50 – key resistance in sight. The bullion found fresh bids in Asia near 1068 region and inches higher after the US dollar pauses its recent upsurge and consolidates in early Europe. Moreover, subdued sentiment on the global equities on the back of lower commodity prices also lent support to the recovery in the precious metal. However, as we head into the European and US session, the XAU/USD recovery appears short-lived. The USD bulls are expected to jump back into the bids following the release of prelim US Q3 GDP q/q figures. Markets are expecting the US economy to grow at 2.0% in Q3 versus 1.5% recorded previously. The upbeat US growth numbers will only add to the latest positive employment and inflation report and further bolster the case for a Dec Fed rate rise, boosting the buck at the expense of the bullion.
Technicals – Downside bias persists until a break above 1h 20 & 100-SMA confluence
On hourly charts, the pair remains capped below the confluence of the bearish 20-SMA and horizontal 100-SMA now located near 1074.50-1074.80 levels. A failure to take out the last, the prices could resume its ongoing downside bias and retest daily lows at 1069.12, below which floors open up for a test of 1066-1065, a strong static support. Selling pressure will intensify below from here and knock-off the bullion to 1063-60 – five-year lows. This may hold true if the US GDP print comes in stronger than expectations. While a weak GDP revision, bulls will be offered support and could extend higher towards 200-SMA located at 1079, only on a decisive break above 1075 resistance zone.
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