Gold trapped between $1220 and $1180; India's gold demand key - HSBC

Currently, Gold spot is trading at 1196.18, up +0.37% or 427-pips on the day, having posted a daily high at 1199.40 and low at 1188.30.

Although market participants allocate resources into gold to hedge risk exposure and inflation, there is nothing set in stone and the lack of any yield makes the metal less attractive when compared to other assets classes such as Treasuries or Sovereign bonds. Furthermore, the inability to keep trading above $1220/oz build doubts around the medium-term outlook for gold prices.    

Historical data available for traders and investors indicates during January that Gold spot had the best trading day at +1.41% (Jan.5) or 1664-pips, and the worst at -1.11% (Jan.18) or (1331)-pips.

Fire Rooster Year slowdowns demand in China
HSBC notes, "India’s gold demand may be stimulated by lower prices. Chinese demand could abate now that the country is celebrating the Lunar New Year, the bank says. However, gold demand in India improved last week, boosted by a fall in prices. HSBC analysts say “we expect demand to recover for as long as gold stays under $1,200/oz.”

"The government’s budget is due to be released this week, and while there is conjecture that the Finance Ministry could cut the 10% gold-import tariff, HSBC analysts say they have low expectations for such a reduction. “But if the ministry announces a cut, we would expect gold to move higher, as India is a key physical demand market for bullion,” HSBC concludes

Trump measures to block USD comeback?

FOMC meeting 'NO' market mover
TD Securities notes,  "That pullbacks in the U.S. dollar may be buying opportunities. Analysts note the dollar has posted five straight weekly declines and retraced nearly 50% of its post-election bump higher. “Given that the market maintains a preference for long USD exposure, we think it will remain vulnerable to further pullback on a mix of policy uncertainty, intraday headlines and U.S. data,” TDS says. Analysts cite a focus on some of this week’s economic releases, including a meeting of the Federal Open Market Committee, manufacturing data and nonfarm payrolls. “We recently revised our Fed call, looking for two hikes this year and three next year but don’t expect this week’s meeting to be market moving,” TDS analysts say. “This could favor a bit more range trading in the early half of the week but (we) like buying into the USD pullbacks.” Metals traders tend to monitor dollar moves closely since base and precious metals alike often move inversely to the U.S. currency."

Technical levels to watch

Carol Harmer, Director at Charmer Trading Academy, notes, "Gold held onto support at 1180 and therefore we should be able to trade higher 1194 /1197 is the level to watch this week. We want to see if we can get above here if we fail then back we go to the 1180/78 support again. We want to hold this support to stop further downside pressure. Now if we do break 1178 we are looking for 1173 quite quickly and possibly a further downside move to 1150. Now Gold is beginning to be oversold after the move higher to 1216/18, so this may well support the market at lower levels. We still have this major resistance at 1216/18 and it is going to take something drastic to actually make us move beyond this. Personally, I don't think we are going to do it. I do think that Gold is a good buy down at lower levels to 1172/1150 and as long as we can hold above here we are going to see buyers coming in."

In terms of technical levels, upside barriers are aligned at 1197 (100-SMA), then at 1201 (50-SMA) and above that at 1210-20 region (horizontal resistance). While supports are aligned at 1188 (today's low) and below that at 1180 (low Jan.27). On the other hand, Stochastic Oscillator (5,3,3) seems to reverse and head north, therefore, there is evidence to expect further Gold gains in the near term. 

On the long-term view, Gold battles a consolidation predicament. To the upside, 1219 level (short-term 38.2% Fib) becomes the immediate resistance and challenge that Gold bugs need to break to have a fighting chance against the evident bearish trend in place from 1375 (high July 3). To the downside, 1182 (short-term 23.6% Fib) provides further support against the almighty US dollar, then an open and close below this level would accelerate the slide towards the previous bottom at 1122 (low Dec.11).

The dollar is floppy, at least against the euro