Gold Analysis: Downside opening up on rising USD, $ 1080-1075 in sight

XAU/USD (gold prices in terms of the US dollar) has had a favourable start to 2016 so far, with the bullion rising as highs as $ 1113, as flight to safety remained the underlying key theme in the first two weeks of this year on the back of uncertainties surrounding China stock markets and also on looming concerns over global economic outlook amidst oil price declines. Investors preferred to protect their capital in times of market unrest and turmoil and resorted to the traditional safe-haven, lifting the precious metal from $ 1060 region seen on the final day of 2015. Moreover, a weaker series of recent US economic news including the US factories and retail sales, added to the ongoing weakness in the greenback and hence, bolstered the gold bulls.

Ever since the prices peaked at 1113.15 levels on Jan 8, the yellow metal has retreated and even tested lows below 50-DMA at 1075.51, before staging a solid recovery last Friday and gained more than $ 20 intraday as the greenback slipped sharply on the back of poor macro dataflow. Further, the extension of the rout on the global equities as well as in oil markets, also aided Friday’s rally in gold. Heading into an eventful week ahead, the bullion surrenders gains and hovers around $ 1090, as the US dollar extends its corrective rally in an otherwise data empty trading session today, with the US markets closed in observance of Martin Luther King Day. The retreat in the bullion is likely to continue as traders remain cautious ahead of China data-deluge and inflation report from the US on the cards later this week.

Technicals – Rising wedge break out on hourly charts

On hourly charts, the pair has given a rising wedge bearish break over the last hours, and now extends further to the downside, with the RSI turning lower and tests the mid-lines on its way south. The price is seen heading towards the crucial horizontal 100-SMA support located at 1087.30 levels, below which floors open up for a test of the next key support of 50-SMA placed near 1085. Below the last, gold targets 1080 – psychological levels, where the 20-DMA intersects, and from there to 50-DMA at 1075.50. On daily charts, the RSI has turned flattish and the prices have formed a small doji, which suggests bulls are doubtful over further upmoves. However, to the upside, the first barrier would be faced at hourly 200-SMA placed at 1092.55, above which $ 1100 mark will hold the key, a breach of which will open further upside.