Gold Approaches 1200.00 Threshold, Will The Metal Bottom Out?

Gold prices plunged to the lowest level since late May on Friday, set for a second-straight week of decline as the U.S. dollar soared strongly after comments from the Federal Reserve President Janet Yellen bolstered expectations that the central bank’s key rates would rise next month.

The precious metal hit $1202.80 per ounce earlier in the session, dragged down by the rally of the greenback, which is experiencing the biggest weekly gain in a year after Fed Chair Yellen said a U.S. interest-rate hike could come “relatively soon.”

Yellen’s remarks which came on the heels of strong economic data on Thursday, which indicated U.S. jobs market is tightening and inflation is gaining traction. Although Yellen, who testified on the economic outlook before the congressional Joint Economic Committee yesterday, stated that little had changed following the victory of Donald Trump U.S. presidential election earlier this month, Trump’s pledges to administration cuts taxes and increases fiscal spending have bolstered markets’ confidence as well as the dollar.

Speculations over accelerating U.S. growth rate and inflation may prompt the Fed to make a move on its rate next month. As a result, gold has been on a decline as the prospect of higher interest rates is considered to be negative for the dollar-denominated asset, which bears no yield.

On Friday, the Dollar index, which measures the currency against a basket of six rivals, rose to 101.37, its highest level since April 2003. The index has risen over 4 percent in the last two weeks, its biggest fortnightly rise since March 2015.


Fig: GOLD D1 Technical Chart

As can be seen from the chart, gold has broken below the 50.0% retracement at 1211.11 and is heading downwards to test the lowest level since May 30th at the 1,200.00 milestone. As indicated by the RSI chart, the gold market has entered the oversold zone, signalling a potential correction. However, there is a wide gap between the +DI and -DI line. Therefore, the metal is expected to fall deeper. As it is the last session of the week, traders should be careful as buyers may take profit.

Trade suggestion

Sell Stop at 1208.00, Stop loss at 1200.00, take profit at 1212.00

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