XAU/USD (gold prices in terms of the US dollar) failed once again near 1088 levels on Friday and dropped to as low as 1075.87, as anticipated. The yellow metal halted its two-day recovery mode and slipped back in the red zone after the prices were sold-in to hawkish Fed speak amid a data-empty trading calendar. New York Fed President William Dudley noted on Friday that the Fed should soon be ready to initiate the rate lift-off. Moreover, persisting EUR/USD weakness on the back of growing FOMC/ECB policy divergence bolstered the buck, which further dragged gold lower. The prices took-out the 10-DMA upside barrier near 1082 levels on yet another occasion and rose to daily highs at 1088.17, only to run through fresh supply near the last and end the day lower, just ahead of 5-DMA at 1077.
In today’s trade so far, the yellow metal is seen recovering from daily lows reached at 1067.47 levels and now trades around 1072.80. However, the recovery is likely to remain short-lived as the USD is expected to remain bid ahead of the mysterious Fed announcement due later today. The Fed’s Board of Governors are scheduled to have a closed-door meeting in the NY session, with markets tipped off that Fed may hike the discount rates which it charges to other commercial banks today. Such a moves would signal that the Fed has embarked upon the policy normalization path and that Dec Fed lift-off is confirmed. Hence, a sharp USD rally would be seen on the Fed decision which may in turn hammer the bullion to multi-year lows. Gold tends to suffer in higher interest rates environment as it is a non-interest bearing alternative investment asset. Meanwhile, the US manufacturing PMI and existing home sales data due later today is expected to be ignored by markets as the focus remains on the Fed event.
Technicals – Upside appears capped by key MA’s on hourly sticks
On hourly charts, the pair gave an ascending triangle bearish break on Friday and now attempts recovery towards the triangle support-turned resistance located at 1077.87. However, the pair finds immediate hurdle near 1075.50 region, the confluence of the bearish 20-SMA and horizontal 100-SMA. A failure to take out the last, the prices could resume its ongoing downside bias and retest daily lows, below which floors open up for a test of five-year lows reached at 1063.20. Selling pressure will intensify below from here and knock-off the bullion to 1060 – psychological levels, which is going to be the case most likely as the Fed may hike the discount rates today.
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