After having peaked above 1128 last Wednesday, XAU/USD (gold in terms of USD) consolidated the upside for the rest of the week, posting 5% monthly gain. The prices settled the week on a firmer note at 1118.61, quickly recovering almost $ 10 intraday. The yellow metal swung back higher on Friday after the US Q4 GDP report disappointed markets and weighed negatively on the Fed’s outlook on the interest rates for this year. The US economic growth slowed sharply in Q4 2015, expanding at 0.7% y/y. Moreover, markets turned cautious ahead of Monday’s China PMI reports and hence, sought safety in the bullion, bidding up its prices.
As for today’s trade so far, the precious metal is on its way to test twelve-week highs reached last week and trader firmer on the back of wide-spread risk-aversion, triggered by yet another set of dismal Chinese manufacturing PMI reports. China’s official PMI gauge slid to a three-year low of 49.4 in January, from 49.7 a month earlier. While the Caixin PMI came in at 48.4 in January, against 48.2 in December, although remained deep in contraction. Moreover, concerns over slowing factory output in the US ahead of the final and ISM manufacturing PMIs, keep the US dollar broadly undermined and hence, boost the dollar priced-in gold.
Technicals – Disappointing US factory data could drive gold to take-out 200-DMA
On hourly charts, the prices have given an inverted head and shoulders breakout above $ 1118, and for which the target is placed at $ 1130, where the downward sloping 200-DMA coincides. A decisive break above the last would confirm further upmoves, with the next resistance seen at 1138.40 (Nov 3 High). On the other hand, should the US dataflow turn out stronger, we could see the prices retreat to 1115-1110 levels (previous lows) and below that could drop to the horizontal 100-DMA at 1105.40.