Gold attempts to extend rebound on continued dollar weakness

As the US dollar continued to pull back on Wednesday morning against some major currencies – most notably the British pound and key commodity currencies like the Australian and Canadian dollars – gold initially attempted to extend its rebound from the 1100-area lows that began late last week.

The US dollar-denominated commodity surged this past Friday due to weak US employment data that led market participants to expect a delayed Fed rate hike beyond the end of this year. This led to an immediate drop in the US dollar and a dramatic one-day rise in the price of gold. While the dollar bounced and then wavered after its initial fall, gold maintained most of its gains from that day and then went on to extend its rally.

Having initially reached above the 1150 level on Wednesday morning before retreating once again, the precious metal has been in bumpy recovery mode since hitting a five-year low of 1077 back in late July. Since that low, the price of gold has followed a clear uptrend support line that has provided some context for this partial recovery.

While gold has been able to find its shaky legs again within the past few days, could this mean that it may be headed towards a longer-term recovery? While there could well be frequent short-term bounces and rebounds, the prospects for longer-term upside for gold is much less likely. As long as the specter of progressively higher interest rates in the US continues to provide some measure of support for the dollar – whenever Fed monetary tightening ultimately begins – gold should continue to be pressured. As it stands, the price of gold remains entrenched in a long-term downtrend extending all the way back to 2011.

With that being said, the precious metal could very well have its times to shine in the short-term, especially when the dollar pulls back or when volatility and risk aversion return to the markets.

Most recently, gold has been attempting to reach back up towards the key 1170 resistance objective, last reached in late August. Its ability to reach and exceed that level will be a key test as to whether this short-term recovery from long-term lows can be sustained. Technically, it is currently trading in a precarious and indecisive position between its 200-day moving average to the upside and 50-day moving average to the downside.

In the event that gold is unable to reach and breach the noted 1170 level, the key downside target in the short-term continues to reside around the 1100 support level.