Gold Analysis: Rounding bottom breakout on hourly sticks, targets $ 1130

XAU/USD (gold in terms of USD) reversed previous losses and extended higher on Monday, finally closing well above 100-DMA then at 1105 levels. The prices rallied on the back increased safe-haven bids as a renewed bout of risk aversion gripped markets after the oil prices end a 2-day short-covering rally and slipped back in the red. The bullion witnessed a $ 12 rally intraday and remained firmer also on a broadly lower USD as markets cast doubts over the Fed’s outlook for future interest rate rises, with the upside further boosted on falling treasury yields. The prices pierced through the 100-DMA barrier and rose as high as 1109.14 before easing slight to 1108.72 at close.

Currently, the yellow metal trades at the highest levels in twelve weeks above $ 1115 , rallying sharply this Tuesday as investors flocked to safety assets amid falling oil prices and stocks, as global growth concerns intensify. Moreover, the crash in the Chinese equities today reinforced China slowdown fears, which also means that the Fed may take a more dovish stance in wake of external headwinds at its 2-day policy meeting commencing later today. Hence, gold prices remain underpinned as markets have already started out-pricing four rate hikes this year. Nothing of note in the macro calendar today, except for the consumer confidence data from the US. Focus now remains on the Fed decision due tomorrow, with markets wary whether the Fed will acknowledge the recent turbulence across the financial markets.

Technicals – Flight to safety likely to push gold towards $ 1130

On hourly charts, gold has given a rounding bottom bullish break at 1111 levels, and hence justifies the ongoing rally in the metal. The pattern target holds just shy of $ 1130 and it appears that amid persistent global market uncertainties, the bullion will achieve the last ahead of Wednesday’s Fed outcome. Although a minor correction in the day ahead cannot be ruled after the extensive rise, while the RSI turns lower from overbought territory. However, the broader uptrend remains in place as the bullion continues to trade well beyond the moving averages.

The daily charts clearly display a cup and handle breakout, for which the medium term target is placed near $ 1180 levels. For the near-term, $ 1130 target looks achievable as it coincides with the 200-DMA. The daily RSI aims higher at 64, suggesting further scope for upside. To the downside, the resistance-turned support at 100-DMA (1105) is likely to act as a crucial support, where the 5-DMA also intersects. A break below the last, 1100 barrier could be retested. However, the risk remains to the upside as we head towards the main risk event for the bullion this week, the FOMC decision.