Gold: Bears now eye the $1,201 50% retracement

Gold has been underwater of late, falling from the early November highs at $1,243 and landing al the way down through the 38.2% Fibo to score a recent low of $1,206.89. On Friday, the safe haven metal could not even rally as US stocks came off, following the lead from another weak performance in China and as a result, the precious metal suffered a fourth loss in five sessions. 

Gold is unwinding the speculative longs that had increased leading into the FOMC meeting and Midterm elections during shaky grounds for equities and the prospects of gridlock. However, the Fed's affirmation that it will be sticking to its preset hiking path has prompted the market to reverse its positioning which ultimately helped the greenback to strengthen and challenged gold prices. "With tail-risks out of the way, we would not be surprised to see gold length resume its downward trajectory for now," analysts at TD Securities argued.

US CPI outlook

For the week ahead, there will be a focus on US CPI. Analysts at Nomura are expecting a steady 0.231% (2.192% y-o-y) m-o-m in core CPI inflation in October:

"Idiosyncratic declines in some components of the core CPI in September will likely revert in October. In particular, used vehicle prices declined 3.0% m-o-m in September and contributed to the downside surprise in core CPI inflation relative to our forecast. Most other core CPI components were in line with our expectations and support our medium term inflation outlook. At the moment, we think the decline in used vehicle prices was transitory and should partially revert in October. Moreover, the notable slowdown in homeowners’ equivalent rent (HOER) in September was concentrated in the Midwest, implying that HOER inflation should pick up in October, and we expect a 0.26% m-o-m increase in rent CPI. Elsewhere, we expect a modest 0.5% m-o-m increase in lodging-away-from-home prices, a 2.9% decline in airline fare prices."

Gold levels

If bears can stay below the 50-D SMA now at 1210, having broken the 38.2% target and the 30th Oct stick's lows at $1,212, the next key target is the $1,201 50% retracement. Bulls will need to get back above the $1229 (key pivot) area that then opens $1243 (Oct. 26 high) before the $1250 (psychological level) and the July high $1,266.