Gold Analysis: Consolidates above key Fib level ahead of US data

XAU/USD (gold price in terms of USD) surged to fresh one-year highs at 1263.36, galloping more than $ 60 or almost 5% on Thursday. The bullion rocketed massively as risk-aversion heightened immensely as equities rout extended into the US, with investors running for cover amid a new era of negative interest rates policy. Markets fretted over returns on their investments and sought safety in gold as it will at least provide some capital appreciation. Meanwhile markets paid very little attention to the second round of Yellen’s testimony before the Senate. Technically, the prices broke through the Fib 127.20% level at 1230.83 (retracement of Oct 15-Dec 3 fall), as expected, and extended beyond the last, only to retrace sharply from the yearly tops towards close and finally ended at $ 1240.42.

As for today’s trade, the yellow metal is seen extended its retreat and now hovers around 1138 levels, having posted daily lows at 1232.32. The sell-off seen in the precious metal may be attributed to a correction after yesterday’s massive rally, as investors take profit on their XAU longs ahead of the US retail sales data and also before the weekend. China will re-open next Monday after a week-long New Year holiday and volatility is likely to reach peaks as the Chinese traders will catch-up with this week’s events. Moreover, the rebound seen in the European equities has also lifted the market sentiment and weighed further on the safe-haven gold. Ahead in the day, the risk remains to the downside as the US datasets, retail sales and consumer sentiment, are likely to paint a better picture of the US economy as against previous.

Technicals – Strong support placed at Fib 127.20% level at 1230.83

On daily charts, the prices have formed a spinning top and hold above the resistance-turned support of Fib 127.20% level. The bulls have taken a breather, with the prices now consolidating previous heavy gains ahead of the US retail sales and consumer sentiment data. The daily RSI at 85.62 remains in the overbought territory and turns lower, suggesting the corrective mode to persist in the day ahead. Hence, the bullion may extend correction towards the above-mentioned Fib level if the US data beats expectations. However, the prices are likely to resist the last as it may act as a solid support and rebound towards 1250 barrier, a break beyond which opens doors for yearly highs reached yesterday above $ 1260.