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Gold Price Holds Key Support Ahead of a Big Week for Global Markets

Gold Price Holds Key Support Ahead of a Big Week for Global Markets

2019-12-09 14:30:00
James Stanley, Currency Strategist
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Gold Price Talking Points:

  • Gold prices saw a quick flare of strength in early-December as the US Dollar was falling, but a counter-trend show of strength in the USD on Friday pushed Gold prices back-down.
  • This week brings a busy economic calendar with Wednesday looking to be of particular interest. The highlights for this week are the UK General Election, the FOMC rate decision and the ECB rate decision set to take place on Thursday.
  • DailyFX Forecasts are published on a variety of markets such as Gold, the US Dollar or the Euro and are available from the DailyFX Trading Guides page.

Gold Holds Support After Friday Fall

It’s already been a busy month of December as two different trends have played out in the US Dollar. The early-portion of the month was marked by sell-off, continuing the bearish move that defined the currency’s backdrop in October trade. And then November produced a pause in that move as price action ranged between support and resistance, with sellers making a visible reappearance around the December open. But last Friday brought a change-of-pace, as a blowout NFP report was followed by a strong sentiment reading out of the US, leading to a quick counter-trend move of US Dollar strength.

In Gold prices, this amounted to an early-month flare of strength that almost entirely dissipated after that Friday data. Gold prices have held since held support at a higher-low with a bit of strength showing around this week’s open.

Gold Four-Hour Price Chart

gold price four hour chart

Chart prepared by James Stanley; Gold on Tradingview

This week’s economic docket is loaded with high-impact events, with Wednesday looking to be of particular interest as the UK General Election takes place along with a couple of key US drivers that will be in the limelight, as CPI is released in the morning ahead of a FOMC rate decision later in the day. Thursday brings rate decisions out of both Switzerland and the ECB, the latter of which is Christine Lagarde’s first rate decision atop the bank, and even Canada is in the mix as BoC Governor Stephen Poloz is set to give a speech later that day.

In Gold prices, the big question is whether the net impact of this outlay equates to a re-emergence of USD-weakness, similar to what showed in October and early-December; or whether we’re looking at continued gains in the Greenback as expectations for Fed softening in 2020 increase.

Expectations for any actual moves at Wednesday rate decision are minimal at this point, and the focus will likely be on the details as market participants attempt to gauge probability for the bank’s moves next year. At this point, there’s a 61% chance of at least one rate cut in the next year, and any hints or clues that this may take place can help to support the bid in Gold prices.

CME Fedwatch: FOMC Expectations to December 2020

cme fedwatch to dec 2020

Gold Prices Long-Term

It’s been a big year for Gold prices as buyers pushed an aggressive breakout earlier this summer. That move was largely-driven by expectations for the FOMC to soften policy, particularly after the risk-off scenario that showed during last year’s Q4. It was around early-June that Jerome Powell began to open the door for rate cuts after nine hikes in the prior five years, and as clues began to stack up that the bank would actually push policy into a softer spot, Gold bulls took charge and drove prices from a June low below 1280 up to a September high above 1550.

Since then, however, the bullish trend has taken a break, and we’ve now seen three months of digestion in that trend. Support has held around the 38.2% Fibonacci retracement of that summer breakout, keeping the door open for longer-term bullish strategies. And recently entering the equation is a bullish trendline that can be found by connecting August and November swing-lows, which helped to hold support in late-November just before USD-bears showed up again.

Gold Daily Price Chart

gold price daily chart

Chart prepared by James Stanley; Gold on Tradingview

Gold Strategy

The big question here appears to be one of timing. Given the longer-term bullish trend and the fact that topside continuation prospects remain, the return of that up-trend appears to mesh-up with when the FOMC talks up the prospect of softer policy, whenever that may be. It does not appear as though December will be that scenario, however, as stocks re-ascending back up to fresh highs on hopes of a trade deal have removed a bit of pressure from the bank. But – any clues or hints that the banks drop in pertinence to near-term rate policy will likely be quickly priced-in by traders, and for Gold prices, this means a focus on support and a hold of the lows, which currently shows in a region from 1450 up to the December swing-low of 1453.45.

Gold Price Two-Hour Chart

gold price two hour chart

Chart prepared by James Stanley; Gold on Tradingview

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts have a section for each major currency, and we also offer a plethora of resources on Gold or USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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