Gold Analysis: Gathering pace for further upside, May high near $ 1230 in focus

As expected, XAU/USD (gold price in terms of USD) did run up to retest 1200 levels on late-Wednesday after Fed Chair Yellen wrapped her testimony before the Congress. The prices rose as high as 1198.64, bouncing-off knee-jerk downward spike t0 1181.42 daily lows, where the 5-DMA intersected. As Yellen’s testimony got underway, the greenback jumped higher on her optimistic remarks on the US economy, while she kept her gradual rate hike stance intact. The bullion dropped sharply to 1181.42 lows initially but, quickly recovered lost ground and climbed back toward $ 1200 mark as markets did not buy Yellen’s no so dovish comments amid persisting global headwinds (particularly China), sluggish US fundamentals and the USD appreciation. Thus, the USD resumed its downside momentum and aided the recovery in the precious metals towards NY close.

As for today’s trade, the yellow metal rallied to 1214.80, the highest levels since May 2015, after the prices tripped stops above the crucial $ 1200 marker. A sudden bout of buying interest developed around gold in early Asia, after investors scrambled for safe-haven amid falling equities and oil prices. Moreover, the greenback came under renewed selling pressure and dropped to fresh four-month lows of 95.54 against its major peers, which also helped the upsurge in the bullion. Subsequently, the prices failed to sustain at higher levels as USD recovered some ground and retreated to $ 1205, before jumping-off the last to now consolidate the upside below 1210 levels over the last few hours. Later today, we have the round 2 of Yellen’s testimony before the Senate, and new surprises are expected for her this time. Meanwhile, on the data front, the US employment claims will be reported, which is likely to have no major impact on the ongoing bullish run in gold.

Technicals –Aiming for Fib 127.20% level just ahead of $ 1230

On daily charts, the prices are extending higher for the second straight session, well above all moving averages. The bulls have built a solid support around 1200 levels (last three sessions’ high). The daily RSI has entered into the overbought territory and now stands at 82.25, which indicates a minor-correction is due before the next leg higher towards $ 1230 (Fib 127.20% retracement of Oct 15-Dec 3 fall). Hence, below a break of 1200 levels, the bullion could drop further towards upward sloping 5-DMA located at 1191.88. Overall the downside is likely to be limited as the uncertainty over Fed rate hike prospects for this year continues to linger in investors’ mind and hence, they run for cover in the safe-haven gold.