Gold Analysis: Close above $ 1200 – Key

XAU/USD (gold price in terms of USD) rallied nearly $ 35 to the highest levels since June 2015 and reversed the entire Fed rate hike backed slide seen during Oct - Dec. The bullion finally surpassed 1200 mark, hitting fresh eight-month high at 1200.92. Gold benefited from heightened risk-aversion on global growth concerns, which triggered sharp global equities sell-off and hence, investors ran for cover in the ultimate safe-haven, gold. Moreover, the recent negative interest rates policy adopted by the central banks combined with dropping bets of Fed rate hikes this year collaborated to the extensive rally in the bullion. Further, inflows in gold-backed ETFs jumped to the highest levels since 2011, reflecting investors’ confidence in the yellow metal in times of uncertainties. Holdings in major gold ETFs rose to 43.3 million ounces, the biggest five-week surge since March 2011. Despite the bullish run, the pair closed below $ 1200 mark, near 1191 levels.

As for today’s trade so far, holiday-thinned trading continue to extend into Europe as the price continues its retreat from 1200 - key psychological barrier hit on Monday. The bullion is seen inching closer towards daily lows hit in opening trades at 1190.60 as risk-off moods appear to ease as oil prices extend higher. Markets now await the European open to gauge the risk sentiment and then may create fresh positions in the precious metal, which could further bolster the upside. While the trading calendar holds limited data on the cards, and thus, focus now remains on Wednesday’s Fed Chair Yellen’s testimony at Capitol Hill for any hint on the Fed’s intent for rate rises this year. Meanwhile markets have almost priced-out a March Fed rate hike in wake of the recent global market turmoil. Data-wise, the second-tier data in the US JOLTS jobs opening will be reported in the NY session, which may have little impact on the bullion as its remains on track for the longest rally (8 days) since 2011.

Technicals – Correction likely following the run-up to $ 1200 threshold

On daily charts, the prices ran into offers at 1200 barrier and dropped sharply this Tuesday on the back of correction after the recent strength. To the downside, the yellow metal finds the immediate support at 1183-80 region (late-Oct levels), below which the prices could accelerate to the upward sloping hourly 50-DMA support located at 1174.40, where Friday’s high coincides. Selling pressure is likely to intensify below the last, dragging the prices to the bullish 5-DMA placed at 1170. The daily RSI has turned lower from the overbought territory, suggesting further scope for downside. The 5-DMA support may come to the rescue of the bulls, and the prices might rebound from there and revert to 1180-85 region once again. Beyond the last, 1200 barrier will be back on sight for the gold traders and only a daily closing above the last will open up further northward moves.