Gold Negated by $1100/oz as Dollar Strengthens

Gold has reversed from our 2nd tier downtrend line and the psychological $1100/oz level as investors snap up the Dollar in another wave of risk aversion. The wave of Dollar strength began during today’s Asia trading session as China’s major banks indicated they are serious about reducing the issuance of new loans. Additionally, the S&P lowered its credit rating outlook for Japan, another positive development for the Dollar considering the negative message this sends in regards to the health of the global economic recovery. Furthermore, the UK just printed a Prelim GDP figure 3 basis points below analyst expectations. Hence, there is a combination of negative developments contributing to strength in the Greenback. However, despite today’s pop in the Dollar gold’s reaction has been somewhat limited thus far. Perhaps it’s the fact that gold is deciding how to deal with $1000/oz while hovering just above previous January lows. Meanwhile, volatility in the FX markets should remain at a heightened state with the release of U.S. CB Consumer Confidence later today. Additionally, Australia will print CPI during tomorrow’s Asia trading session followed by U.S. New Home Sales and the Fed’s monetary policy decision. That being said, investors should keep an eye on key support in the major Dollar pairs because further deterioration could have enough of an influence to drag gold below previous 2010 lows.

Technically speaking, gold has multiple uptrend lines serving as technical cushions along December ’09 lows should they be tested. As for the topside, gold faces a few steep downtrend lines along with the highly psychological $1100/oz level. Furthermore, intraday and 12/31 highs could serve as technical barriers should they be reached.

Present Price: $1091.00/oz

Resistances: $1095.66/oz, $1100.67/oz, $1103.49/oz, $1106.31/oz, $1110.07/oz, $1115.39/oz

Supports: $1088.45/oz, $1085.01/oz, $1082.10/oz, $1079.30/oz, $1074.95/oz, $1070.65/oz

Psychological: $1075/oz, $1100/oz, December lows