Gold Analysis: XAU/USD likely to test $ 1200 on a break below 50-DMA

On Friday, XAU/USD (gold price in terms of USD) failed once again near the falling trend line resistance placed near $ 1238 reached and witnessed massive sell-off thereon, driving the prices below the crucial 50-DMA support located then at $ 1212.68. The prices consolidated in a $ 5 narrow range almost through the European afternoon and finally broke to the downside after US jobs data surprised to the upside, with the payrolls data showing 215k jobs additions in March, against 206k expected and 245k last, while the average hourly earnings rose 0.3% versus a 0.2% increase expected. A better US labour market report refuelled beliefs that Fed may hike rates as early as this June, and hence weighed heavily on the non-interest paying yellow metal. The bullion recovered almost half the slide and closed above $ 1220 barrier, settling the week on a bullish note.

The yellow metal ran through offers once again near $ 1223 in early Asia this Monday, and now continues to drift lower towards the key 50-DMA support, as the US dollar rebounded against its major peers and shot 0.20% higher, with 95 handle back on sight. Moreover, a relief rally witnessed on the European indices also collaborated to the downside in the safe-haven gold. Looking ahead, markets now await the US datasets due for release later in the US session, including the factory orders and Fed’s labour market conditions index, which may have major impact on the USD moves, and eventually on the bullion. While the FOMC March meeting minutes due for release on Wednesday is expected to emerge the key risk event for gold this week.

Technicals – Downside favoured heading into the FOMC minutes’ week

Gold prices continue to move back and forth in a potential falling channel formation on the daily charts and remains capped below the 5 & 10-DMAconfluence placed near $ 1226/27 levels, while both the DMA have a bearish slope. While the daily RSI aims sharply lower below the mid-line and has lot more room before it hits the oversold territory, Hence, it can be said that the prices are expected to remain under pressure going forward. A break beyond the key 50-DMA barrier at 1214.83, selling pressure is likely to intensify drowning the prices towards 1209/07 levels (previous lows), and from there to $ 1200 – key psychological barrier. While on the flip side, a tepid-bounce cannot be ruled out either, if the US datasets disappoint markets. In the case, the prices could climb back to $ 1220 levels, beyond which the confluence zone near $ 1227 can be tested. Further upside looks limited as bears continue to remain in control on resurgence of Fed rate hike bets this year.