Gold reverses from 2-week highs and drops toward $1,200

• The yellow metal dropped sharply after hitting new highs and lost $10 during the US session. 
• The bias continues to point to the upside but the bullish momentum eased. 

The greenback recovered momentum during the US session and triggered a sharp correction in gold. The yellow metal peaked earlier today at $1,214.20, the highest since August 10 and then bounced to the downside. Recently hit $1,203.20, juts a few cents above Monday’s low. 

Price was holding near the lows with a strong negative tone. A correction of the US dollar across the board, amid higher US yields activated the correction in gold after rising $30 from Friday. Better-than-expected US data boosted the greenback. US August CB Consumer Confidence jumped to 133.4, well above the 126.9 expected.

Technical outlook 

“Gold peaked at 1,214.22, far below the critical 1,220.00 resistance, and technical readings in the daily chart suggest that it may well resume its decline, as the price is barely holding above a flat 20 DMA, while still far below the larger ones, but more relevant, technical indicators failed to enter positive territory and turned south”, says Valeria Bednarik, Chief Analyst at FXStreet.

Ahead of the Asian session, the negative potential is even stronger notes Bednarik, “as the metal is retreating sharply after testing a bearish 200 SMA (4-hour chart) and while still holding above a bullish 20 SMA, technical indicators have turned sharply lower, now challenging their mid-lines.”