Traders could argue that the next support level is the 200-day MA, which is currently at $1163. This would test support in a band from $1190 down to $1150, last established in Q3 2015.
Whether or not this will happen is down to the dollar, with the Fed plainly preparing the ground for another rate increase. The Fed is trapped by its zero rate monetary policy, and must be frustrated at its powerlessness. The result is a 50-50 expectation of a quarter point increase either this month or in July.
This is a tough call, because official statistics, particularly unemployment and core inflation suggests a hike should happen, while business surveys, which are generally downbeat, suggest otherwise. And if inflation continues to rise towards and through the two per cent mark, driven by rising energy and commodity prices, any delay in raising interest rates will be seen as a bad mistake.
Meanwhile, the Eurozone is badly stagnating, and the news from Japan is not good, with a Bank of Japan board member expressing renewed pessimism about the economy, driving the yen sharply higher in the process. The last thing the economists at the Bank of Japan and the ECB want to see is for the US to raise interest rates, when the world appears to be on the brink of recession.
Precious metals have surely discounted a possible rate hike in June/July. Whether or not it happens will probably decide in the short-term whether gold rallies from the $1200 level, or if it moves towards a test of the 200-day moving average.
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