As well anticipated on Friday, the XAU/USD pair (gold price in terms of USD) rallied to fresh three-week highs of 1258.81 on Monday, after having witnessed a falling channel bullish breakout on daily charts on Thursday. Fundamentally, the gold price rally was fuelled by broad based US dollar selling on the back of diminishing odds of Fed rate hikes this year. The CME Fed Watch tool that tracks the Fed funds futures, on which traders bet to gauge the direction of US interest rates, showed 49% odds for a Fed rate increase by December from the current target range of 0.25%-0.50%, from 58% a week ago. The bullion tends to benefit in a low-interest environment as it is a non-interest paying safe-haven asset. Moreover, the relentless rise in the yen on non-intervention talks from Japan also contributed to the USD sell-off and boosted the dollar-denominated precious metal.
As for today’s trade in running, the yellow metal extends the previous rally and hit the highest levels since March 17 at 1262.77 as demand for the safe-haven assets gathered pace as investors turned cautious progressing towards a data-heavy macro week ahead. Markets seek safety ahead of China data deluge and the retail sales and CPI figures from the US lined up for release later this week. Moreover, the US dollar resumed its broader downtrend against its major peers, with the USD dollar index hitting fresh eight-month lows near 93.60 levels. Looking ahead, the bullion is expected to remain bid on safe-haven flows amid a lack of significant fundamental triggers today. The US calendar remains data-quiet, with the only import prices due on the cards, which is expected to have virtually no impact on the prices.
Technicals – Gold targets $ 1270-1280 beyond a break of $ 1265 resistance
On daily charts, gold extends its bullish run for the fourth straight session and now trades above all major moving averages. The daily RSI at 61 also aims higher and suggests further potential for upside remains intact. However, a minor correction in the prices cannot be ruled out, given the recent upsurge, before the next leg higher resumes. To the upside, the next target for the falling channel bullish break remains March 17 High at 1270.93 on a convincing break above 1265 levels. The bulls will be in complete control above 1270, taking the prices towards 2016 highs reached at 1283.01. While to the downside, the immediate support is located around 1244 region, the confluence of 5-DMA and yesterday’s low. A breach of the last, the prices could drop further to test the next strong support at 1236-34 zone, where the 10 and 20-DMA intersect. A failure to resist above the last, upward sloping 50-DMA support at 1229.20 could come to the rescue. Overall, a generalised intraday upside bias persists largely on technical buying.
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