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XAU/USD Bullish potential intact, could test $ 1130 on dovish Fed

XAU/USD (gold in terms of USD) rose to the highest levels since Nov 3 at 1122.95 on Tuesday and rallied as much as $ 15 intraday as the demand for the safe-haven gold was on the rise amid heightening risk-aversion led by sliding oil prices. The bullion was unperturbed by the revival of risk appetite during the American session, after oil prices staged a minor-recovery, and continued its bullish momentum. More so, the better than expected consumer confidence figures also failed to weigh on the positive sentiment around the precious metal, as the main focus remained on the Fed outcome. Gold prices closed the day at 1119.56, well above the trend line resistance-turned support at 1112.70.

Currently, the yellow metal deflates from near three-month highs reached at 1122.28 earlier in Asia and trades around $ 1117, consolidating to the upside before the next leg higher. The prices retreat slightly as the risk sentiment improves after a positive start to the European indices. However, the correction lower looks limited as the greenback is expected to remain defensive ahead of the Fed decision due later in the NY session. The FOMC meeting for January concludes today and the Fed is widely expected to leave monetary policy unchanged. Although all eyes will remain on the accompanying statement, which is likely to reflect more dovish language in light of the recent volatility and oil rout.

Technicals – Corrective slide remains short-lived, $ 1130 eyed

On hourly charts, gold is seen breaking lower, with the 5-SMA surpassing 20-SMA from above, and may drop further to the bullish 50-SMA at 1112.95, before resuming the ongoing winning streak. The hourly 50-SMA coincides with the cup and handle pattern trend line resistance-turned support and hence, is likely to act a solid support. A bounce from the last, could take prices back towards $ 1122-23 levels (previous top), beyond which doors open for the test of the pattern target at $ 1130 (as explained here) and from there could test 200-DMA at 1131.23. The downside looks limited as the Fed’s stance is largely expected to come in more dovish.

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