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Gold Analysis: Consolidating before next leg lower, eyes August lows

Gold prices in terms of the US dollar (XAU/USD) almost retraced the entire rally seen in the first half of Oct on Wednesday, falling sharply to fresh monthly lows at 1106.41. The renewed sell-off in the yellow metal was triggered yesterday, after it failed to resist the Fib 78.6% levels at 1123.30 (retracement of Oct 2-15 rise). Fundamentally, what led to the $ 15 sharp drop in the bullion can be explained by the Fed Chair Yellen’s hawkish comments while testifying in the last US session. Yellen repeated that the committee sees Dec Fed rate hike possibility alive, while adding that no decision have been made on the same. Moreover, upbeat US ISM services and ADP report also added to bullish sentiment in the USD, hammering gold to just ahead of Oct lows.

In today’s trade so far, the bullion attempts a tepid bounce from multi-week lows and hovers around 1108.50 levels, with the upside capped near Sept 30 Low at 1111.60. The prices are expected to remain pressured as the Fed officers are now optimistic on the US economic outlook and see Dec meeting as a ‘live event’. Moreover, the odds of a Dec rate rise as indicated by Fed funds rate futures contract on CME have risen to 58%, from about 45% seen after the latest FOMC meeting, the CME Group’s FedWatch tool showed on Wednesday. Later in the day, Fed speaks and the US weekly unemployment claims will be released which may further talk up Dec lift-off and further pressure gold towards 1100 barrier. While the main decisive factor, which may confirm Dec rate hike, the non-farm payrolls data, is due to be reported on Friday.

Technicals – A break below $ 1100, targets $ 1080

On daily charts, the pair has formed a small doji and languishes within a shouting distance of the fresh monthly lows reached yesterday. The daily RSI at 31 points slightly lower supporting further southward moves. Hence, a breach of 1106-1104 levels (Nov 4 & Oct 2 Lows), the floors open for a test of 1100 – psychological barrier. Selling pressure will intensify below the last, taking the prices further towards 1080, the confluence of August lows and Fib 127.20% (of the same rally). In case the prices manage to hold 1100 threshold, a minor recovery could be attempted towards 1115-18 levels above daily highs. However, the upside seems limited as the ongoing Dec Fed talks continue to dent gold, which a non-interest bearing asset.

XAUUSD

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