Gold: Bulls taking a breather following fresh highs made on $1,320

Gold has picked up a considerable bid as markets remain troubled by a bearish diversion in yields.
Gold prices are trading between $1,311.05 oz and $1,323.09oz.

While central banks have shown a keen bias to hold, which had previously beefed up risk assets and the case for higher stocks, last week, sentiment flipped over with a bearish diversion between long and short term yields following poor data from Germany and the US - The Fed is now in fact expected to cut rates before the year is out and interest rate markets are pricing in a 60% chance of that happening by December - not good news for the greenback and supportive of gold.

"From our vantage point, we expect gold to head towards our target of $1,364/oz sooner than anticipated. While prices have thus far avoided closing above levels that would imply substantial CTA buying, the bar is low for algorithmic trend followers to substantially add to their length above $1315/oz," analysts at TD Securities explained.

Looking ahead

Looking ahead, among various Fed speech this week, markets will also be focussed on US PCE:

"We expect core inflation to maintain its recent 0.2% m/m pace in January, keeping the annual rate slightly below 2% for a fourth straight month. Conversely, spending should have bounced back from December's large 0.5% contraction. We pencil in a 0.4% jump but see scope for a smaller increase. Our forecast would leave spending tracking a soft 0.5% q/q increase for Q1," analysts

at TD Securities explained.

Gold levels

1320 ahead of 1332 guards the 2019 highs as being the 19th Feb high of 1345.19. On the downside, 1315 and 1302 are key ahead of 1298 and 1290. 1280 is a keen target ahead of 1275 which remains the line in the sand to the downside. A break below here will put the attention back to the towards to 1250, a key confluence area made up of Fibos and prior support and resistance.

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