Gold (XAU/USD) Analysis

Gold Selloff Stagnates Ahead of Major Event Risk: US CPI

The weekly gold chart shows a marked slowdown in the gold selloff, particularly last week which produced a doji candle – representative of indecision in the market. Reluctance to push higher above the 1910 zone was evident via the multiple upper wicks on the weekly candles which ultimately resulted in a massive swing lower.

Gold (XAU/USD) Weekly Chart

Source: TradingView, prepared by Richard Snow

The daily chart shows the massive selloff which ensued the day after the FOMC which continued after a massive beat in US jobs data and stellar PMI ‘new orders’ data. The double hit of optimism caused a knock-on effect which resulted in more hawkish repricing in dollar-linked assets and gold was no different.

With the market bidding up the value of the dollar and US treasury yields – particularly the 2-year yield – gold became relatively less attractive as it does not provide a yield.

In the days that followed the massive selloff, gold prices produced what appears to be a bear flag, as bulls attempted to regain some lost ground. There is still a fair distance to go if we are to see this pattern fill out but a continued grind lower suggests a move towards the 200 simple moving average (SMA) at 1775 cannot be ruled out.

However, bears will have to push prices past the psychological 1800 level first. Risks to the bearish gold outlook appear in the form of US CPI at 13:30. If the rate of disinflation increases and we get a surprise to the downside, there may be another round of dollar repricing, but this time to the downside which could support gold in the short-term. Resistance lies at 1875, followed by 1910/1915.

Gold (XAU/USD) Daily Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX