The XAU/USD pair (gold prices in terms of the US dollar) halted a four-day losing streak and rebounded on Tuesday, finally ending the day in the green above 5-DMA at 1166.38. The bullion once again found fresh bids above 1160 levels and climbed as high as 1168.84 after the USD bulls took a back seat following the release of dismal US economic data. The latest data showed a drop in the US corporate spending and consumer confidence, adding to the recent streak of downbeat US fundamentals and reinforcing views for delayed Fed rate hike. The prices kept the recent trading range between key Fib levels as markets awaited the Fed decision for fresh direction.
Currently, gold extends its upbeat momentum into a second day and tested the 200-DMA now located at 1172.73, before retreated slightly to 1170.50 levels. The prices remain boosted as markets are almost convinced of a no Oct Fed rate hike and also belief the Fed rate hike bets are almost pushed back to March 2016 as the central banks may appear concerned over weak US economic data and a renewed strength in the US dollar. While the Fed may also acknowledge the external headwinds to the US economic prospects and therefore would turn out to be more dovish. Thus, boosting the non-interest bearing gold. A renewed USD rally will be triggered in case the FOMC statement turns out to be a non-event with no dovish remarks, which would dent the sentiment around the yellow metal. Overall, the gold prices look attractive heading into the Fed event, with markets widely anticipating the Fed to remain in a wait-and-see mode.
Technicals – A break above 200-DMA, opens doors for $ 1180
On daily charts, the prices failed near the bearish 200-DMA and now eased below the Fib 38.20% retracement (Oct 2-15 rally) located at 1171.44. Gold remains supported above the horizontal 5-DMA support placed near 1166 and manages to cling onto gains above 1170 – psychological levels. The daily RSI aims higher around 59 levels supporting further advances. Hence, a decisive break above 200-DMA is warranted for a test of 1180 levels. Should the FOMC statement turn out to be absolutely dovish, the bulls would conquer the last, above which 1185-1190 resistance zone could be tested.
Conversely, if the Fed event emerges USD positive, then the gold prices could be hammered to the strong support located near 1159-1160, the confluence of Fib 38.20% (of the same rally) and upward sloping 20-DMA. Further downside looks unlikely as the rest of the central banks are poised to extend their easing programs in the months ahead, in a bid to spur growth in the respective economies.
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