Gold has started a correction with the topside looking weaker. A test of the 1150 – 1190 support is therefore very much possible as hawkish Fed stirs up the rate hike narrative.
After posting a strong rally in the first quarter, gold prices, which were choppy for the most part has weakened considerably since May after posting a high to $1303.80. With prices trading below the $1250 handle, gold is likely to push lower in the coming weeks as increasing hawkish rhetoric from Federal Reserve officials keep the pressure on gold. With the minutes from the April meeting showing that several voting members were of the view that the Fed could hike in June, the US dollar posted a strong rally while the safe haven asset has weakened.
Interestingly, the bullish calls on gold are starting to disappear again with bearish calls starting to take over. This week, Citi group was the first to start off the bearish rhetoric noting that “We see no reason why gold should not once more trade at $1,050/oz if US$-DXY rises back to the 100-level (now 95.3). Nor do we see anything to prevent gold falling below $1,000/oz if US$-DXY rises above the 100-level.” Citi group expects to see the US dollar head back above the psychological 100 level and expects gold to fall to $1000, a level that wasn’t reached since September 2009.
However, we expect that $1000 target in gold is unlikely to happen at this point in time. After a strong bullish run for the most part of the first half of this year, gold is likely to take the much-needed pause, with the technical support at 1150 – 1190 likely to be tested. This was the very support level that most investors who missed the gold’s bull cycle missed out on.
Gold – Technical Outlook
Starting with the weekly chart, we see that gold has broken the rising trend line but is supported near the 1230 levels. A weekly close below this level is required for a move towards 1172 – 1164 support. However, it is unlikely to see further downside in gold for the near term. A modest pullback to 1261.35 – 1253.75 is very likely. Bounce off the 1230 support and a test back to 1253.75 could set the stage for a strong momentum led decline that could break the 1230 
support for a move to 1172 – 1164.
Gold – Weekly Chart, price breakout from the rising wedge
On the daily chart, price action, as we see it is currently right near the 1230 – 1224 support. A daily doji or a bullish reversal near the current support could see gold prices pull back to the previously held support levels of 1261.35 – 1253.75. The RSI also confirmed the bearish divergence at the current levels, validating the near term correction likely to take place. Ahead of a test to 1172 – 1164, the 1200 support is very likely to slow down the declines.
Gold – Daily Chart: Price at 1230 – 1224 support
While gold prices have formed a top in the near term, it is too early to expect gold prices to resume its long term bearish trend. The support levels near the 1190 – 1150 will be critical as a bullish reversal here would mean a test of the support level that previously acted as resistance and saw no interaction over the past quarter and a few months.
