XAU/USD (gold price in terms of USD) rallied to the highest levels since Oct 30 at 1145.50 on Wednesday after the US dollar was heavily sold into mounting growth concerns surrounding the US economy, triggered by disappointing sets of services PMI report from both ISM and Markit. With the US economy losing momentum, markets started losing faith in the Fed’s outlook for further rate hikes this year. Hence, the US dollar was relentlessly offered across the board, and the USD index dropped to fresh four-month lows below 97 handle. The CME group’s FED Watch tool reflected only 14% chance of a Fed hike in March, 18% in April and 24% in June. Gold tends to benefit in a low-interest rate environment as it is a non-interest bearing investment asset.
As for today’s trade so far, the yellow metal retreats from multi-week peaks and now trades around $ 1141 levels, consolidating the extensive rally booked yesterday. Heading into Europe, the US dollar recovery from multi-month trough picks up pace and hence, drags the dollar-priced in gold lower. However, the downside looks limited in the bullion as the dwindling March Fed rate hike bets will keep the greenback’s recovery in check. While the upcoming US data viz., the weekly jobless claims and factory orders are expected to add to the recent series of poor US fundamentals and refuel another round of USD selling across the board. Factory orders are predicted to drop 2.5% in December, widening the previous 0.2% fall. While markets are expecting 277,000 Americans to have applied for unemployment benefits during the week of January 30, compared to 278,000 last.
Technicals – Looks to test Fib 78.60% at $ 1160.19
On the daily charts, the prices have formed a small doji , while the RSI has turned flattish near 70 region, both indicating that the precious metal looks fresh incentives (US data) for further momentum. Should the jobless claims and factory orders disappoint markets once again, we could see the price climb back to fresh multi-month highs of $ 1145.50, beyond which doors open for a test of the Fib 78.60% level at $ 1160.19 (retracement of Oct 15 – Dec 3 slide). On the flip side, the bullion finds immediate support at crucial Fib 61.80% of the same decline placed at $ 1135.59. A breach of the last, would expose prices to the 200-DMA support located near $ 1130. Overall, the upside looks more convincing as the prices trade above all the major moving averages.
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