Don't Chase Weakness As Gold Looks To Test Support
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Yesterday’s close: Settled at 1287.4, down 4.6
Fundamentals: Gold traded to a high of 1295.7 and CPI data was right in-line with expectations. This should leave the technicals in control with another lower high for the metal on the chart. We have pounded the table that we prefer to capitalize on strength and even such there has been multiple swings this week to buy first key support and sell against strong resistance. The Dollar is unchanged and today’s close will also bring technical importance. While the Dollar is unchanged, it does not include the Chinese Yuan which has gained 1.5% on the week against the Dollar and is trading at its strongest level since July 26th. This has provided a tailwind to Gold to start the year and furthermore, China added to its Gold reserves in December for the first time since October 2016. Lastly, traders should keep a pulse on risk-sentiment, its ok if the Dollar Index holds ground if equity markets show weakness or Treasuries recover from a recent move lower; this would bring support to Gold.
Technicals: Price action is back below our momentum indicator which comes in at 1291.2. Traders need to expect a test to first key support at minimum today which comes in at 1278.1-1282.3. Also, crucial will be the Dollar Index, it must close below 95.50 on a weekly basis in order to minimally confirm a budding downtrend. As we said above, we prefer to capitalize on strength and major three-star resistance has held strong at 1298-1300. Traders should be prepared to see a move into major three-star support at 1265.6-1270.3.
Resistance: 1298-1300***, 1313-1320**
Support: 1278.1-1282.3**, 1265.6-1270.3***, 1250-1256.4**, 1245.3**, 1236.2-1236.7***