Gold drops as the Dollar Index rises to 3-week high

Gold is losing altitude in Asia as the Dollar Index rose to a 3-week high amid growing speculation that the Federal Reserve would begin the process of balance sheet normalization later this year.

At the time of writing, the yellow metal was down 0.23% at $1253/Oz levels. The Dollar Index clocked a three-week high of 101.31 and was last seen trading around 101.26 levels.

Trades below 200-DMA

The metal trades below the 200-DMA level of $1256.77. Prices rose above the 200-DMA on Friday to a high of $1270.94, but the faded the spike to close at $1253.50 as the 10-year treasury yield recovered sharply from the low of 2.269% to 2.382%.

The yields recovered after the data released on Friday showed the US jobless rate dropped to a 10-year low of 4.5% in March. The markets also seem to have shrugged off the rise in the geopolitical tensions.

Fed’s Bullard was on the wires earlier today, stating the Fed balance sheet size is bigger than it should be. Moreover, the ‘buzz’ word now is Fed’s balance sheet normalization. The metal could take hit Fed’s Yellen talks about downsizing the balance sheet during her speech later today.

Gold Technical Levels

A break above $1256.77 (200-DMA) would expose Friday’s high of $1270. The next major hurdle is seen at $1284 (Mar high). On the other hand, a break below $1249.58 (Apr 6 low) could yield a sell-off to $1243.93 (Apr 5 low) and $1239.88 (Mar 31 low).