Technical analysis: Gold confirms near term downtrend with firm dollar, while $1200 remains key

Dollar weakness over the past three weeks has resulted in gold confirming its failure below the channel resistance it tested on 23 January and the yellow metal has downside room until fresh five-year lows before a meaningful rebound off the channel support.

However, $1200 is crucial for the near term as that forms the support of a short term upside channel, so a mild rebound is not unlikely. In that case, $1255 is the level to watch, which if not broken on a closing basis, the momentum will remain southward.

The next level after $1200 will be $1131, which was the November low. A break of that will open doors to new five-year lows and eventually towards $1000, even though $1043 will be a level to watch ahead of that.

On the monthly and weekly charts, gold is holding below the 14-period as well as 50-period moving averages, showing the strong downside bias. Also, the 50-period curve on the monthly picture has steepened downward recently, indicating weaker momentum will continue for a longer period.

Fundamentally, the dollar strength is a factor weighing on the yellow metal. The USD index has come off the 12-year high of 95.47 it touched a few weeks ago, but it is largely holding a 2 point sideways track below the peak helped by stronger-than-expected jobs data last week.

The dollar index dropped to 93.26 on 3 February only to rebound 95.11 earlier this week, but has pared a part of that gains on Thursday after worse-than-expected retail sales data from the US.