Gold bulls will be chasing 2011 on further declines on the dollar

Spot gold was as high as 1208 at one stage in the US session on dollar weakness with the DXY falling further as investors continue to pile into risk-on asset classes, albeit doing so cautiously in the absence of trade war headlines. We now head towards next week's FOMC meeting as the biggest risk for the precious metal outside of further geopolitical headlines. 

The FOMC is expected to rates twice this year which is factored into the dollar already, but the detail in the FOMC's outlook will be the key mover for the dollar one way or the other - bulls in need of some uber hawkishness or, indeed, some stark warnings over trade conflicts might just do the trick as well. Analysts at 

Casting minds back, the August CPI missed sharply to the downside, but analysts at TD Securities argued that the details were more upbeat than the headline misses suggest: "This report will not stir the hawks but is still consistent with gradual rate hikes back toward neutral. Our bias remains for two more rate hikes this year and three in 2019."

DXY to break key support?

Meanwhile, the DXY bulls are on thin ice and a break of the 93 handle will turn up the panic selling in this long squeeze that could take the dollar all the way down to the 50 percent Fib at 92.62 where yield spreads and risk will likely be reassessed.

Gold levels

On the wider picture, gold remains in a sideways consolidation between 1214 and 1182. The market is heavily short of gold, (net speculative short positions, or bets an asset’s price will fall, in gold, are up 275% year to date). Bulls need to get and hold above the 50-D SMA at 1211 to convince. In doing so, the bulls can then go on to target 1214 which is resistance ahead of the 200-W SMA at 1233 that will need to be challenged. To the downside, a retry of the downside now should target 1146/20 monthly levels.