A strong dollar resulted in a drastic fall in Gold – Will it continue?

As the strong dollar attracted significant selling pressure in the billions, gold prices fell sharply. The dollar spiked as foreign financial markets became more risk averse following Fitch’s downgrade of the United States’ sovereign rating.

The yellow metal slid nearly one per cent over the past two days, with MCX October futures pulling further away from a two-week high as data showed that private payrolls grew substantially more than expected in July.

Prior to the release of the official nonfarm payrolls figures on Friday, the reading increased dollar strength and fueled fears about a labour market that is in overdrive. The dollar’s strength caused most metal prices to decline.

Even while Fitch’s reduction of the U.S. sovereign rating caused risk aversion in other financial markets, the yellow metal didn’t see much demand as a safe haven.

The dollar sparked above a two-week high after the Fitch cut, taking support from much stronger-than-expected payrolls data released by ADP. The reading followed data earlier this week that showed some signs of a U.S. manufacturing and construction recovery.

The information reinforced wagers that the Federal Reserve will have enough room in the economy to raise rates higher and keep them there, which is bad news for the markets for gold and metals.

Rising interest rates increase the potential cost of owning bullion and make the currency appear more secure to investors than gold.

The focus will shift to the Bank of England policy scheduled later today. The market forecast is to hike by 5.25% basis point interest rate hike from 5.00%.

Technical Outlook

Gold prices retreated from the peak of 59930 and dropped towards the recent low of 59350.00. Yesterday prices settled at 59471. Now trading at 59350, down by 0.20%.

On the above chart, the formation of a long bearish candlestick is indicating a business in the near future. However, it would need to break below crucial support 59290 to test 59050-58750.00. Else, any rise towards 59600-59800 could attract selling activities unless Gold gives closing above 60050.00.

On the upside, massive resistance is seen at 60050 a break above will open the door for the next resistance 60800-61500.00.

The overall trend is expected to remain volatile in the next two days as Bank of England policy and U.S. NFP data will give direction