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Gold forms death cross on charts, down 5% in 2018 so far

Battling between the bullish and bearish macros, gold prices failed to win hearts of investors offering a negative return of around 5 percent for 2018.

A bearish chart pattern – Death Cross – has materialised in gold, indicating that the precious metal is likely to extend a recent downtrend that has dragged it to its lowest level in 2018.

 A Death Cross is a technical pattern which is formed when a 50-period moving average crosses below the 200-period moving average. The pattern which was last seen in commodities in November 2016 and resulted in a decline of more than $50 in metal prices.
Gold has yet again failed to cross its 38.2 percent retracement level ($1,380) of the fall from $1,920 per troy ounce to $1,046/oz. With the weekly relative strength index dropping below 37 in a lower top-lower bottom formation since April, it is evident that there is some weakness in prices.

Immediate support for gold is seen at $1,237/oz, a level which is derived by connecting its November 2015 low of $1,046/oz. A breach below the same may trigger a further downside towards $1,210-1,207/oz levels. On the upside, we might face resistance at $1,273-1,285/oz levels.

The recent downdraft in gold can be attributed to a strengthening dollar against its rivals over the past several weeks as the Federal Reserve continues its plan to raise benchmark interest rates (bullish for the greenback).

The dollar has been trading at 11-month highs and has appreciated over 7.5-8 percent from the lows of 2018.

The Federal Reserve raised interest rates for the second time this year and upgraded its forecast to four total increases in 2018 as unemployment falls and inflation overshoots their target faster than previously projected.

The European Central Bank too has outlined plans to end its easy-money policies joining the Federal Reserve in rolling back its quantitative easing initiatives.

Rising trade war concerns between the US and other major economies like China may limit a significant downside in the prices. However, we may witness increased volatility in the yellow metal.

On the domestic front, the fall may also be limited amid a weakening rupee which hit a 19-month low on Thursday. The rupee has been depreciating amid rising crude oil prices and geopolitical worries.

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