Gold Hits $1555 Target- Prices to Range Ahead of Bernanke Testimony
Fundamental Forecast for Gold: Neutral
- Crude Oil May Fall on LTRO2 Repayment, Gold Aiming Higher
- Gold Prices Forecast to Weaken Towards 1530
- Gold Finds Interim Support, Oil May Follow on US CPI
It has been quite the week for gold traders with the precious metal plummeting nearly 2% to trade at $1578 at the close of trade in New York on Friday. Bullion has now triggered all of our targets cited in last week’s gold forecast after a surprisingly hawkish Fed minutes prompted a massive decline that saw prices drop more than $40 in a single session. Although our broader bias remains weighted to the downside, the recent sell-off may prompt a bout of profit taking after tagging critical support and gold prices may pair a portion of the decline before continuing lower.
The release of the latest Fed minutes on Wednesday proved to be the fundamental catalyst needed to achieve our $1555 three-month price target noted in our forecast last year. The minutes showed a growing rift within the committee with regards to the proper time to cease QE operations and the risks associated with keeping monetary policy too accommodative for too long. Several FOMC members did state that the central bank, “should be prepared to vary the pace” of liquidity injections with some participants citing concerns regarding more QE and the risks that it possess as it could “prompt excessive risk taking”. The release saw gold come under tremendous pressure as inflationary concerns were instantly discounted on expectations that the central bank may look to end its easing cycle this year and although it’s unlikely that the Fed will look to alter QE operations in the near-term, the minutes do suggest that the committee is starting to consider possible exit strategies as the US recovery continues to gather pace.
Looking ahead to next week, investors will be lending a keen ear to Fed Chairman Bernanke as he testifies before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday. In light of the latest minutes, market participants will be looking to see whether the chairman echoes the concerns cited this week, or whether he will remain steadfast in his assertions that the central bank will need to keep monetary policy extremely lax for the foreseeable future. Investors will also be closely eyeing housing data with the Case Shiller Home Price index, new home sales and pending home sales on tap early in the week. As the domestic recovery continues to show signs of strengthening, look for gold advances to remain limited as the US dollar continues its assault.
From a technical standpoint, gold has now satisfied the 1.618% Fibonacci extension taken from the October decline at $1555 and while the broader bias remains weighted to the downside we will maintain a neutral stance here as daily RSI rebounds off oversold levels not seen since June of 1999. It’s also worth noting that the decline into $1555 did see a compromise of trendline support dating back to the July 2011 before paring a portion of the decline to close the week just above this threshold. Interim resistance now stands with the 1.382% extension at $1585 with a breach above this mark eyeing subsequent ceilings at the 23.6% retracement from the October decline at $1611 and the key 61.8% retracement from the rally off the December 2011 lows at $1626. Only a weekly close above the 100% extension at $1631 would invalidate our broader bias. A break below key support at $1550 puts us back on track with such a scenario eying subsequent targets at the May 2012 lows at $1527 and $1483. –MB
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