Gold Prices Drop amid Strong US Dollar

Gold faded a bullish spike to $1338 level during Asian trading session and turned back lower, erasing all of its tepid gains recorded on Tuesday. In the past few trading session, the precious metal has been oscillating within a narrow trading band and is currently trading close to the lower end of the range, at around $1323 level.

On Tuesday, Gold inched higher, in what could be categorized as a subdued trading action, finding some support from weakness in equity markets that boosted the safe-haven appeal of the precious metal. Although, the precious metal has maintained its bullish trend, but of late has started tracking stocks and hence, seems to be losing stream on strong rally witnessed across global equity markets. Spot gold inched higher to $1335 per ounce but failed to build on to its tepid bounce and finally settled at $1332 for the day, with only marginal gains.

Gold had risen nearly 15% from May lows and touched $1375, its highest level since March 2014, in the aftermath of a historic referendum in the UK that voted to end Britain’s membership with the European Union. Since then prices have retraced and last week the metal snapped a six-week winning streak. The commodity posted its first weekly decline in almost two month as recent upbeat US economic data drove investors back towards riskier assets and halted the ongoing bullish rally in gold.

Last week’s stronger-than-expected retail sales and industrial production data, which was preceded by the release of spectacular jobs report for June earlier during the month, supported the optimistic view of a better outlook for the world’s largest economy and has been a key drag on gold prices of-late.

Upbeat incoming US economic data has now fueled speculation of an imminent Fed rate-hike later during the year, with CME group’s Fed Fund futures pricing-in around 40% probability of such an action in December, which might continue to hinder any bullish traction for the bullion in the short-term.

Adding to this, BoE’s surprise decision to hold its monetary policy steady has also impacted gold prices in the recent past.

Technical update

The metal is now trading below ascending short-term moving average (20-day SMA), pointing towards continuation of the commodity’s near-term corrective move. The presumption would be confirmed once it decisively breaks below $1320 trading range support.

Below $1320, the metal is likely to immediately drift to post-Brexit corrective swing support near $1305 region. A follow through selling pressure below $1305-$1300 handle should drag the commodity to its next major support near $1285 region, marking 50-day SMA.

On the upside, top end of the trading range, near $1338-40 zone, might continue to act as immediate resistance. Momentum above this immediate resistance might confront resistance near $1350 horizontal area. Only a decisive move back above $1350 now seems to negate any near-term bearish bias and assist the metal to aim back towards its recent highs resistance near $1375 level.