Gold rally pauses as strong Dollar caps gains, markets await ADP data

The strong and one sided bullish rally in Gold that recorded All Time High of $4380 was spectacular, historic and stubborn with literally no pullback and extremely overbought conditions on higher time frames, RSI on Monthly time frame was screaming at 92+ as the momentum was unstoppable.

However, like all good things, this too had to take a break and here it is. Gold has retraced from $4380 record high to $3886, roughly $500 correction.

1st Fibonacci retracement of 23.6% was at $4129 followed next by 38.2% retracement at $3973 and next upcoming retracement of 50% sits at $3846 followed by 61.8% retracement at $3720

Recently, Gold has been trading sideways with traders prioritizing buy the dip as value buying was suitably rewarded with $100-$150-$200 daily swings becoming a new normal during unprecedented volatility and wide range.

As the US government shutdown enters 35th day, fiscal administration is at standstill, key economic data releases are put on hold, leaving limited clues for market and economic situation assessment. Tomorrow's upcoming ADP data is widely awaited for further action.

Dollar Index continues to strengthen above 200 Day SMA dynamically positioned at 99.20 while prevailing strength hovers at 100 mark and next immediate upside potential may reach 100.50 and near term upside may extend to 101.50

Dollar has inverse relation with Gold and a strong Dollar usually keeps Gold under pressure as opportunity cost of holding dollar denominated Gold increases substantially, thereby reducing appeal for the non yield asset in comparison to yielding Bonds.

Moreover, there is growing optimism about US-China trade deal with China importing 1,80,000 tonnes of US soyabeans which may be seen as an ice breaking gesture, reducing global tensions on tariff front.

Short term outlook

The $500 drop off the record high of $4380 to $3886 is a healthy price correction with still room for some more consolidation and if price breaks below recent low of $3886 and 50 day EMA $3870 will expose 50% retracement zone $3846 followed by 61.8% retracement zone $3820

On the flip side, if Gold breaks above $4000, the upside momentum will face immediate hurdle at $4015-$4026--$4030-$4045 followed by higher resistance cluster comprising of zones lined up as $4070-$4090-$4110 while major resistance sits at $4135-$4190

Overall outlook

The prevailing downward shift in momentum is a part of natural price correction which may have room to extend further to $3846-$3820 or even a tad lower. This correctional wave is a temporary phenomenon which is followed by a strong impulse in line with the primary trend.