Gold Tries to Recover From $1100 Reversion

Gold dove back below its highly psychological $1100/oz level and set new March lows after a wave of risk aversion hit the FX markets. Investors fled to the Dollar after Fitch lowered Portugal’s credit rating. With Greece’s financial assistance plan still up in the air, another debt scare in the EU has accelerated Dollar flows in risk aversion, highlighted by large gains in the USD/JPY. Gold has reacted negatively to today’s development since the precious metal tends to have a negative correlation with the Greenback. However, downside movements in gold have been somewhat limited compared to the selloffs taking place in the EUR/USD and Cable. Gold has managed to regain its footing before a retest of February lows. However, we’ll have to see how the trading session progresses since problems in the EU could continue to benefit the Dollar. U.S. New Home Sales just printed below analyst expectations, which could help buoy gold and deflate the Dollar intraday since it works against speculation that the Fed will raise sooner than anticipated, a Dollar negative. We notice slight strength in the Cable and EUR/USD in reaction to the news, though we’ll see whether it has staying power. All eyes will be on the EU summit tomorrow, although expectations have been lowered by persistent rebuttals from Germany. The EU, UK and U.S. will also through in some data points, making tomorrow’s trading session a bit interesting.

Technically speaking, gold has intraday and February 2010 lows serving as technical cushions along with the psychological $1075/oz level should it be tested. As for the topside, gold faces multiple downtrend lines along with 2/25 and intraday highs. Meanwhile, the psychological $1100/oz level could continue to have an influence on gold as long as the precious metal remains within striking distance.

Present Price: $1092.50/oz
Resistances: $1093.37/oz, $1094.92/oz, $1096.18/oz, $1097.26/oz, $1098.10/oz, $1099.32/oz
Supports: $1092.23/oz, $1091.40/oz, $1089.78/oz, $1088.72/oz, $1086.90/oz
Psychological: $1100/oz, February lows