Gold Analysis: XAU/USD: Weakness to persist, eyes 1170 on upbeat US data

The XAU/USD pair (gold prices in terms of the US dollar) did manage to take out the Fib golden ratio at 161.80% retracement (Set 24-Oct 2 decline) located at 1190.18 on Thursday. However, the spike was short-lived and the bullion retreated sharply after the USD bulls jumped back into the bids following the release of unexpectedly positive US CPI data. The US CPI dropped 0.2% m/m in Sept, matching forecasts while the core CPI accelerated to 1.9% in September, outpacing the 1.8% gain expected. While further adding to the bullish sentiment around the greenback, the US weekly jobless claims reached the lowest levels since 1973, dragging the gold prices lower. Markets started re-pricing in Dec Fed rate lift-off bets, with the Reuter Polls showing a 56% probability of a Dec rate hike. The prices breached the 200-DMA support then located at 1176.73, falling as low as 1174.32, although recovered to 1181.80 at close.

As for today’s trade in running, XAU/USD extends weakness and corrects further, having failed once again at higher levels. The prices edged lower mainly on the back of profit-taking after the recent strength and ahead of the weekly closing. Moreover, the renewed optimism on the US economy after the recent datasets has triggered a fresh wave of risk-on rally in the global equities, thereby dulling gold’s appeal as a safe-haven. While markets now look forward to a set of key US data flow in the New York to confirm the recent signs of strength seen in the US. Later today, the crucial US prelim consumer sentiment and the industrial production figures will be closely watched. Markets are expecting consumer morale to have improved to 88.88 in Sept versus an 87.2 reading seen in Aug. While the industrial output is expected to show a 0.2% drop in Sept, easing slightly from a 0.4% decline seen previously.

Technicals – Bearish on US data, could drop to Fib 127.20% level

On daily charts, the prices have dropped below the 200-DMA now located at 1176.49 and looks to drop further in the day ahead with the daily RSI aiming sharply lower at 64, suggesting further room for declines. Hence, the next immediate support in sight is placed at Fib 127.20% (of the same fall) level at 1171.61, below which floors would open for a test of 1163.05 - Oct 14 Lows.

Should the US consumer sentiment miss estimates, USD bulls will take a backseat and resume its broader downtrend, driving the bullion back towards the key Fib golden ratio 161.80% levels. A sustained break above the last, the pair could storm its way through 1200 barrier. Only a weekly closing above 1200 levels, could open further upside towards 1215-1230 levels in the next week.