Gold Posts Largest Weekly Advance Since 2009 - Rally to Hinge on FOMC
Fundamental Forecast for Gold: Bullish
- Gold Channel Resistance Near 1750
- Crude Oil Poised to Rise, Gold Sold as Markets Digest EU Summit
- Gold Speculative Longs at Lowest Level Since April 2009
Gold was higher by more than 6% on the week as a massive sell-off in the US dollar saw trader diversify into the yellow metal which posted its largest weekly advance since January of 2009. Concerns over a possible default in Europe subsided after EU officials agreed on a rescue package to shore up banks and avert a Greek credit event. The subsequent surge in risk appetite prompted investors to jettison the greenback in favor of higher yielding growth linked assets.
From a fundamental standpoint, gold looks poised for further advances on the back of renewed optimism regarding the domestic economy. As traders go back on the hunt for yields, the dollar will likely remain under pressure which will in turn prop up commodity prices. On the other hand if concerns regarding the economy persist, increased speculation of another round of quantitative easing from the Fed may also weigh on the greenback, which again would lead to further advances in gold which is seen as a safe store of value as well as a hedge against inflation.
The FOMC rate decision on Wednesday presents the most significant event risk for gold next week. Although the central bank is certain to hold interest rates at 0.25%, the accompanying statement may show a more upbeat assessment of the economy after a string of stronger than expected economic data this month saw recessionary concerns subside. However despite the advance in equities, ongoing concerns about global growth prospects may see the Fed maintain a cautious outlook while leaving the door open for further easing measures as the central bank looks to maintain its wait-and-see approach. Although the situation in Europe may have subsided in the interim, ongoing fears of a slowdown in China and Japan linger with gold likely to remain well supported on the back of haven flows.
Gold has now advanced 8.7% off last Thursday’s low at $1603 and staggering 13.7% off the September 26th low at $1532. This week, the precious metal broke back above the key 61.8% Fibonacci extension taken from the August 25th and September 26th troughs at $1665 as the rally in commodities gathered pace. The week closed just below the 100% Fibonacci extension t 1750 where interim resistance now holds. A breach here eyes subsequent topside targets at $1770, $1800, and $1840. Initial support rests at $1730 backed by the 76.4% extension at $1700 and $1675. -MB
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