The XAU/USD pair (gold prices in terms of the US dollar) extended gains for the third straight session on Wednesday and pierced through the key 200-DMA at 1176.86, scoring fresh three and a half month highs at 1189.94, just shy of the Fib golden ratio at 161.80% retracement (Set 24-Oct 2 decline) located at 1190.18. The prices were caught by a fresh buying wave following the release of dismal retail sales and PPI data from the US, which further squashed Fed rate hike expectations for this year. Gold turns out to be a better alternative higher yielding asset during a low interest rate regime. The bullion also remained boosted as the recent weak Chinese data refuelled worries over China’s economic outlook and spurred the demand for safety assets such as gold.
As for today’s trade in running, XAU/USD halted a four-day rally and retreated from multi-month highs, having faced rejection at the Fib golden ratio at 161.80% at 1190.18 yesterday. The pair bounced-off lows and now reverts towards daily highs, although upside seems capped on the back of a recovery in the US dollar and the European stocks. Later in the day, the crucial US inflation data and Philly Fed manufacturing gauge will be closely watched for renewed signs of the ongoing weakness in the US economy and the subsequent Fed rate hike chatter. Markets are expecting a 0.2% drop in the all items CPI in September while core CPI is expected to remain at 1.0% m/m in September.
Technicals – Set to test $ 1200 on softer CPI figures
On daily charts, the pair is seen recovering from daily lows reached at 1181.63 and forms a small doji, thus oscillating between the Fib golden ratio resistance and the key 200-DMA located at 1176.75. The daily RSI has turned flatter just below the overbought territory, with the pair now awaiting the US data for fresh moves.
Should the US CPI figures miss estimates or match forecasts, we could see a disinflation comeback in the US and subsequent USD battering, thus driving the gold prices for a retest of the Fib golden ratio. Above the last the prices would climb further towards the 1200 marker. A failure to break beyond the last, the prices could revert towards the daily lows, below which floors would open for a test of the 200-DMA. A fresh sell-off could trigger below the last, dragging prices towards the Fib 127.20% (of the same fall) support at 1171.61. The downside could hold true in case the US inflation print surprises markets to the upside.
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