Fundamental Forecast for Gold:Neutral
- Gold Leading the Way in Macro Flows
- Crude Oil, Gold Looking Ahead to Next Week’s FOMC Outcome
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Gold rallied for a fifth consecutive week with the precious metal advancing 1.14% to trade at $1267 ahead of the New York close on Friday. Markets have turned over with equities posting the largest weekly decline since June of 2012 as the USD came under pressure ahead of next week’s FOMC policy meeting. The recent rally in gold has been quite impressive and although our focus since the start of the year has been weighted to the topside, prices are now vulnerable just below a key inflection point.
Early signs of risk aversion-flows have started to surface with investors moving into the relative safety of US Treasuries, pushing yields on the 10year to their lowest levels since late-November. The move also benefited the swissy and the yen as investors dumped higher yielding risk assets. The greenback was the outlier however, with the reserve currency coming under pressure as trader’s reduced long exposure ahead of key event risk next week. The result saw inflows into gold push prices into critical resistance and if overtaken could lead to substantially higher prices for bullion.
The US economic docket picks up again next week with new home/pending home sales, durable goods orders, the advanced read on 4Q GDP, and the University of Michigan confidence survey on tap. GDP is expected to have expanded by an annualized rate of 3.2%, down from the blowout 4.1% 3Q print. Look for positive data surprises to offer some support for the dollar / limit gold advances as we head into the main event on Wednesday.
The FOMC rate decision takes center stage next week as Bernanke conducts his final policy meeting as central bank chairman. Markets will be focused on whether or not the dismal December jobs report and the recent pullback in equity prices are enough to thwart additional cuts to the asset purchase program. Should the Fed decide to hold off on another taper, the greenback may come under some pressure to the benefit of gold. But with gold now posting its longest stretch of weekly advances in over 16 months, is there still more room to the upside on the metal?
From a technical standpoint, gold is now challenging trendline resistance dating back to the August high. The $1268/70 resistance region remains paramount for gold and a topside breach of this threshold would validate the trendline break and shift our focus higher heading into the end of 1Q. Such a scenario eyes initial topside resistance targets at $1279 & $1287 with subsequent objectives seen at $1319 and $1325/30. It’s important to note that that the recent rally remains at risk below $1270 and a break below the Thursday low at $1231 would invalidate the advance and shift our focus back to the broader decline off the August highs. Bottom line, look to the FOMC to offer a catalyst with a breach above $1270 needed to suggest a more significant low was put in back in December. -MB