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Likely scenarios for Gold price

Likely scenarios for Gold price

2014-01-24 21:31:00
Research, Research Team

Main Points

  • This is decisive moment for gold, a further move will set medium term price direction for yellow metal
  • Resistance seen around $1272
  • Retracement from current level is also a possibility
  • Investors eye FOMC January meeting

Gold on Friday closed at $1253 per ounce, just above $1250, a crucial resistance level. We saw a tough fight between bulls and beers around $1250 last week. Now I see two possible scenarios for Gold next week, the first one is bullish and the other is bearish.

Scenario 1 (Bullish)

According to first scenario yellow metal should keep continue upward movement till $1272, a very important 50% fib level as shown in following daily chart;

gold_price_fomc_body_Picture_2.png, Likely scenarios for Gold price

If this ongoing upward wave on daily chart prints a high around $1272, it would confirm our medium term bullish bias about gold and in that case a surge up to $1375 in coming weeks should not be considered an unusual thing.

Although a reversal from $1272 is the most likely case in my opinion, however if gold extends gain up to $1292 or above, even then the above mentioned forecast will remain same because in both the cases we would get Higher High (HH) on daily chart which is believed to be a very strong indication of bullish momentum.

Scenario 2 (Bearish)

According to second scenario gold may take retracement from current level and then extend downside movement up to $1227 in order to print a Lower Low (LL) on daily chart.

gold_price_fomc_body_Picture_1.png, Likely scenarios for Gold price

A LL on daily chart would turn our medium term bias about gold to bearish thus threatening the double bottom price pattern which is obvious on weekly chart.

In above mentioned two scenarios, the first one seems more likely because keeping in view the worst yearly loss in more than three decades last year, a notable correction is due in bullion price which does not require any catalyst.

Unlike silver, we do not see supply concerns about gold as the cost of mining recorded in third quarter of last year was significantly lower than the current market price. The lowest cash costs associated with yellow metal were recorded in Indonesia that were $414 / ounce; whereas maximum costs were $928 / ounce in South Africa, well below the current price in open market.

It is also to be noted that FOMC officials are due to meet later this month in which they will be considering more tapering in monthly bond-buying program worth $75 billion after they decided to cut Quantitative Easing (QE) by $10 billion in their last meeting. This crucial meeting, that is scheduled on 28-29 January, may keep the price of gold in a tight range as investors usually remain cautious ahead of such high profile fundamental events.

Minutes of FOMC December meeting showed that some policy makers wanted to strengthen Fed forward guidance through more precise explanation on central bank’s monetary policy stance if jobless rate reaches 6.5% threshold. In light of a recent report released by labor department that showed unemployment rate at 6.7% in December, the lowest level since 2008, we will be monitoring closely if FOMC considers suggestion of strengthening forward guidance in forthcoming meeting.

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