Gold records biggest daily drop since November, is $1200/oz next?

Eren Sengezer FXStreet

The troy ounce of the precious metal stayed under heavy selling pressure on Monday and lost more than $20, recording its biggest daily drop since the greenback's rally in November on Trump's election victory. At the moment, the XAU/USD pair is trading at $1219, down 1.8% on the day.

Two factors were in play on Monday that dragged down the pair. Frist the strong recovery witnessed in the greenback and the second the improved market sentiment.

The US Dollar Index, which tracks the greenback against a basket of six trade-weighted peers, rebounded on Monday as most USD denominated pairs started to correct their oversold readings. Furthermore, today's data from the U.S. brought back the idea that the economic slowdown witnessed in the first half of the year was transitory. The Institute for Supply Management on Monday revealed that its index of national factory activity advanced to its best level in nearly three years as it came in at 57.8, beating the market expectation of 55.2. On the back of the solid ISM data, the DXY edged higher to 96 mark and is now at 95.95, up 0.6% on the day.

On the other hand, global equity indexes, except the tech-heavy Nasdaq Composite, closed higher on Monday, curbing the demand for safer investing alternatives like precious metals. In addition to Gold, Silver for September delivery lost more than 3% to close at $16.092/oz.

US Equities: Dow & S&P close higher while Nasdaq drops

On Tuesday, the U.S. markets will be on holiday due to Independence Day and the XAU/USD pair could take that opportunity to take a breather.

Technical outlook

Now with the 200-DMA violated, the pair could aim for $1214 (May 9 low) and the significant $1200 (psychological level) ahead of $1195 (Mar. 10 low). On the upside, resistances could be seen at $1227 (200-DMA), $1242 (daily high) and $1251 (20-DMA).

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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