Gold Sell-off Gets a Reprieve, but Damage is Done- 2011 Low on Tap
Fundamental Forecast For Gold: Bearish
- Gold, Crude Oil Look to G20 to Fuel Continued Recovery
- Gold Focus Still on Another Low Before Larger Bounce-
- Gold, Crude Oil Aim Higher as Risk Appetite Recovers
The gold sell-off continued early this week with the precious metal plummeting more than 5.8% by the close of trade on Friday. The decline snapped back ahead of key support and although prices closed the week more than $77 off the lows, the technical damage from this month’s sell-off has already been done and although in the near-term the recovery may seem constructive, further losses are expected amid improving US metrics.
Although the Fed’s Beige Book continued to note the persistent slack in the real economy, the survey highlighted a ‘moderate’ recovery with most districts reporting a marked improvement in the real estate market. At the same time, consumer spending ‘grew modestly’ despite the protracted recovery in the labor market, with price pressures ‘generally contained’ amid subdued wage growth. Still, it appears as though the FOMC will continue to operate under its ‘qualitative approach’ to foster a more robust recovery in employment. However, we may see a growing rift within the FOMC regarding the efficacy of QE and the proper normalizing monetary policy as the US economy gets on a more sustainable path.
Looking ahead to next week, traders will be closely eyeing economic data out of the US with existing/new homes sales, durable goods orders, and 1Q GDP print on tap. As the Fed sees a more broad based recovery in the housing market, next week’s prints may play a greater role in driving dollar price action with positive US data continuing to support the dollar rally. Friday’s advanced GDP print for the first quarter will take central focus with consensus estimates calling for a print of 3.1% which would mark the strongest read on US growth since December of 2011. Look for the recent rebound in gold to fizzle amid persistent dollar strength with improving economic data continuing to weigh on expectations for prolonged Fed easing.
The technical significance of this month’s decline cannot be understated and although bullion closed more than 5% off the lows, the damage done to key technical barriers is likely to keep the broader bias weighted on the downside. Our primary objective remains the range between the 2011 lows and the 123.6% Fibonacci extension taken from the decline off the record 2011 highs at $1302-1307. Note that daily RSI closed the week just below the 30-threshold after hitting lows not seen since the 1970s and with that in mind, we leave room for a bit of a bounce here into our resistance targets. Interim resistance stands at the 38.2% retracement taken form the decline off the April 10th high at $1424. Critical resistance stands at the region between the 61.8% retracement and the 78.6% extension at $1481-$1486. Only a breach above this mark on a daily closes basis invalidates the broader downtrend off the October high. -MB
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