Fundamental Forecast for Gold:Neutral
- Gold Breaks $1,370 As Emerging Markets Fears Dominate Price Action
- Weekly Price & Time: Gold Trades at Multi-Month High
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Gold rallied for a sixth consecutive week with the precious metal advancing 2.8% to trade at $1378 ahead of the New York close on Friday. A breach above the monthly opening range this week and continued concerns over the geopolitical unrest in Ukraine has kept prices well supported as broader risk assets came under pressure. With gold trading at levels not seen in six month, the stakes are high for the bulls heading into next week.
US equity indices were off by more than 2% on the week and the flows have continues to prop up classic haven plays like the Japanese yen (top performer on the week) and the Swiss franc. The event risk posed by the ongoing standoff in Crimea was just the catalyst needed to push gold prices through resistance and while the broader picture remains constructive, prices are at risk in the near-term.
Looking into next week traders will be closely following developments in Crimea with a referendum votescheduled for Sunday ahead of the FOMC policy decision on Wednesday where the central bank is widely expected to taper QE purchases by another $10 billion. Look for guidance from the accompanying policy statement with any mentions about the improving jobs outlook and/or inflation likely to limit further advances in gold in the near-term. That said, the focus remains on validation of recent resistance breach with pullbacks likely to offer more favorable long entries.
From a technical standpoint the breach above the March opening range saw prices go through trendline resistance dating back to the 2012 high. We have continued to trade within the confines of a well-defined ascending channel formation with resistance seen capping the advance just higher. Note that the last time gold has rallied for this many consecutive weeks was back in 2011 when prices went on a seven week streak. That rally preceded a huge surge in volatility with gold posting record all-time highs just three weeks later before turning sharply lower. Bottom line: look for a blow-off next week to offer a pullback in gold with our broader focus remaining weighted to the topside while above the March low at $1325. We will take a neutral stance heading into next week’s event risk while noting topside objectives at $1400, $1415 and the August highs at $1433. - MB