Gold consolidates following strong short-covering rally

The pullback yesterday and during Asian trading today appears driven by broader risk aversion and profit-taking after CTAs and hedge funds completed an initial round of aggressive short covering. A rebound in oil prices, whose earlier slump helped trigger the rally, has added to the consolidation pressure. So far, the setback remains relatively shallow when measured against key Fibonacci retracement levels, and as long as gold holds above USD 3,975, we view the weakness as a correction following a strong rally rather than the start of a renewed downtrend. In the very short term, developments in US equities and, not least, President Trump's next moves regarding Iran remain the key drivers to watch. Meanwhile, lower Treasury yields and fading expectations of a December Fed rate hike continue to provide underlying support, partly offsetting renewed dollar strength.