XAU/USD (gold prices in terms of the US dollar) dropped on Tuesday as expected and closed the day in the red at 1087.87, having struck daily lows at 1082.51 and almost tested 20-DMA. As anticipated, the weakness in the EUR/USD pair led to the rise in the US dollar and weighed on the gold prices. The common currency ignored mildly auspicious economic news in the form of ZEW and fell as low as 1.0866 before recovering above 1.09 handle at close. The risk-on sentiment dominated markets yesterday, which further diminished gold’s safe-haven appeal. However, the prices managed to regain momentum and settled above the Fib 50% retracement of the 2016 rise.
In today’s trade so far, gold stages solid recovery as risk-off sentiment seeps back to markets as the black gold resumed its broader downtrend, which weighed heavily on the Asian equities. Once again investors’ appetite for risk crashed and flight to safety emerged the underlying theme, and thus lifted the gold bulls back above $ 1090 barrier. Looking ahead, gold prices are expected to remain supported on the back of persisting risk-aversion before the key US inflation report due later in the NY session. The latest CPI figures are expected to be closely watched as they could tell more about the possibility of rate hikes in the months to come. In wake of the recent oil price declines and a stronger, it wouldn’t be surprising if the CPI report highlights the rise in the deflationary pressures, creating a hurdle for the Fed’s future rate hike outlook. Hence, this could once again turn gold supportive.
Technicals – A break beyond $ 1100 seems on the cards
The hourly chart presents an extremely optimistic view on the gold prices, with the prices trading above all majors moving averages. While the 5-SMA breaks above all averages, including the 200-SMA over the last few hours. The RSI aims sharply higher and stands at 63.50 levels, suggesting further advances. However, as it can be observed, a decisive break above $ 1095 is required to confirm further bullish momentum beyond $ 1100 mark.
While from the daily charts, it can be seen that the prices have surpassed the 10-DMA barrier at 1092.65 and now gathers pace for a break above 1097.50 (Jan 15 High), beyond which the immediate resistance is located at 1099.75/1100 (Fib 23.60% retracement of the same rally/ round number). Should the US CPI figures surprise on the upside and trigger a sharp USD rally, we could see gold prices heading lower towards 5-DMA horizontal support at 1087.11, below which bears will take the bullion to previous lows and 20-DMA confluence near 1082 levels. Selling pressure will intensify below the last drowning gold to 50-DMA at 1075.57. However, downside looks limited ongoing global market turmoil.
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