Gold bullish uptrend at risk near 50-SMA; US dollar on fire

Currently, Gold is trading at 1199.20, down -0.42% on the day, having posted a daily high at 1206.05 and low at 1195.95.

Gold bugs enjoyed three-consecutive weeks when the metal rallied from 1125 (low Dec.18) towards 1200 which is a significant value zone to attract more buyers. However, the party seems to come to end as Fed's Yellen horizon includes several rates hikes all the way to 2019. If that's the case, there is tangible evidence to expect, sooner rather than later, a shift in risk appetite and without an attractive yield, common sense is aligned to go long-dollar and short-gold. 

Interest-rates differential on the spot

Myra P. Saefong and Rachel Koning, Markets reporter and News editor at Market Watch, report that the U.S. dollar began to climb on Wednesday after Yellen said she expects Fed-controlled interest rates to rise “a few times a year” through 2019. She also said the central bank was nearing its goals for inflation and employment and that it “makes sense” to reduce the central bank’s level of monetary support. Higher interest rates tend to dull demand for gold which doesn’t bear a yield.

The 50-DMA Breakout

Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst, notes that the decline in the USD Index was likely a temporary phenomenon based on the investor's needless overreaction – the USD reversed and more than erased this week's decline. The metals' reaction was also in tune with our expectations – they reversed. Was this just a one-day phenomenon and will gold rally based on its recent breakout above its 50-day moving average or can we expect more declines in the following days?

He further writes, "The latter scenario seems much more probable. We've seen gold hit a strong resistance level (a combination of such levels), a support in the USD Index, reversals in the latter and in silver around their turning points, underperformance of mining stocks relative to gold and very short-term outperformance of silver. Additionally, we saw bearish confirmations from a few ratios and gold's reaction to the USD's declines was temporarily weakened."

Technical levels to watch 

As of writing, Gold gravitates around its 50-SMA (H4), a close and open below this zone would open doors for further loses. Immediate downside supports are aligned at 1177 (100-SMA), and below that at 1160 near 200-SMA. To the upside, if prices retake 1200, then 1210 is the next logical resistance to target and then, 1218 (high Jan.17). 

Yellen's remarks confirm inflation is coming fast