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Gold Analysis – XAU/USD: Looks to retest Fib support below 1160

The XAU/USD pair (gold prices in terms of the US dollar) ended in the red on Friday at 1164.10, booking first weekly losses after two consecutive weeks of gains. The prices extended its 3-day decline and witnessed steep losses as the US dollar rallied to fresh two-month tops versus its major peers. The bullion failed to benefit from the ECB stimulus hints and China interest rate cut as the solid gains in the USD overshadowed the easing news. The yellow metal spiked to 1179.47 in a knee-jerk reaction to China rate cut news, piercing through the 200-DMA then located at 1174.52. Although gold immediately faded the spike and plunged to fresh weekly-lows of 1159.04 as markets flocked to the US currency. The pair found good support ahead of the Fib 38.20% retracement of Oct 2-15 rally which lies at 1158.76 and managed to recover above Thursday’s low at 1161.69 at close.

As for today’s trade so far, XAU bears took a breather from the recent run of losses and edged slightly higher, as the US dollar corrects lower after the recent upsurge to two-month highs. However, the risk-on rally in the global equities after China’s rate cut announcement keeps the gains in check. Markets remain cautious and refrain from placing big bets on the bullion ahead of the most influential event this week – the FOMC statement, which may create huge volatility around the US dollar and eventually impact the gold prices. Later today, the prices are expected to trade in the recent familiar ranges as the US new home sales due to be reported in the New York session might have limited influence on markets.

Technicals – Capped by 5-DMA, doji seen on daily sticks

On daily charts, the prices are currently hovering below the bearish 5-DMA located at 1167.33 and oscillates in a $ 4 slim range. The prices await fresh triggers for further momentum as indicated by a small doji formed while the daily RSI at 56 has turned slightly flatter, which also supports range-trade to extend with a slightly negative bias. Hence, to the downside, the prices could drop to the above-mentioned Fib 38.20% levels below a break of daily lows struck at 1162.20. The next immediate support stands at the rising 20-DMA located at 1154.82 levels, should the prices crack through the Fib levels.

On the other hand, the prices could rebound higher from the Fib 38.20% retracement and head higher for a retest of 5-DMA, beyond which the next upside barrier in sight is the Fib 23.60% of the same rally placed at 1171.44 levels. A break above the last, the 200-DMA located at 1174 could come back into the picture.

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