Gold Advance at Risk Amid FOMC Policy-$1600 Remains in Focus
Fundamental Forecast for Gold: Neutral
- Crude Oil to Rise as Gold Declines on Strong US Economic Data
- Gold Dips Find Demand
- Crude Oil, Gold Prices Look for Cues in US Retail Sales Data
Our expectations noted in last week’s forecast have come to fruition with gold mounting the $1585 resistance level early in the week, taking bullion prices up by 0.86% to close at $1592 in New York on Friday. The advance comes alongside weakness in the US Dollar with the Dow Jones FXCM Dollar Index off by nearly 1% on the week as all four component currencies (EUR, GBP, AUD and JPY) advanced against the greenback. Although our broader technical bias remains weighted to the downside, the risk for a continuation of this week’s advance keeps us looking higher in the near-term with key event risk next week likely to offer further conviction on an interim directional bias.
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Advanced retail sales data released this week nearly doubled consensus estimates with a print of 1.1% for the month of February and further reinforce strength in the US consumer base. However, a thirteen month low in the University of Michigan consumer confidence print and a stronger than expected CPI print on Friday may see gold prices supported in the near-term as investors awaiting the Fed for insight into the direction of future monetary policy. For months FOMC officials have suggested that inflation remains in check and that current policy is unlikely to fuel any substantial price growth, but Friday’s data may see Bernanke strike a more neutral tone as prices slowly creep higher with demand for gold likely to pick up as investors look to hedge against inflation.
Looking ahead to next week, investors will be closely eyeing the FOMC rate decision where Bernanke and company will offer their quarterly updated assessment of the US economy and interest rate outlook. The release of the minutes from the last policy meeting fueled a massive rally in the USD amid discussions within the committee with regards to the efficacy and risks of prolonged monetary easing. Should the forecasts reflect a more upbeat tone on growth, traders will likely steer clear of the precious metal as equity markets continue to press fresh yearly highs. The area of interest for gold traders will be the committees outlook on inflation on the back of Friday’s stronger than expected CPI print and if inflation becomes more of a concern, gold prices may continue to build on the back of this week’s advance with the technicals suggest that the
From a technical standpoint, there has been no change to our gold forecast and now that prices have breached above the $1585 threshold, the risk for a correction higher increases with interim resistance eyed at $1600. Key resistance stands in the range between $1626 and $1631 with only a breach above this mark invalidating the broader downtrend. Note that daily RSI close the week just below trendline resistance dating back to the September highs with a topside break early next weekly likely to offer further conviction for move back above the $1600-threshold. A break below critical support in the range between $1550-$1555 puts us back on track with such a scenario eying subsequent targets at the May 2012 lows at $1527 and the 78.6% long-term Fibonacci extension taken from the descent off the record highs at $1483. Bottom line, look for the FOMC rate decision to serve as a catalyst on Wednesday for the next secondary trend. -MB
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