Gold Plummets Through Key Support as Fed Mulls QE End- $1482 in Focus
Fundamental Forecast for Gold: Bearish
- Gold Digests Losses but Next Move is Unclear
- Crude Oil May Fall as Gold Gains on US Jobless Claims Data
- Gold Current Level Defined by Former Support
Gold plummeted this week with the precious metal falling nearly 5% to trade at $1502 at the close of trade in New York on Friday. The loss pushed bullion below key technical barriers with Friday's range marking the largest decline in more than a year. However, with data out of the world's largest economy coming under increased scrutiny, could weak US data help support the battered metal? Don't count on it.
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Economic data this week has been lackluster on the back of last Friday's dismal NFP data with prints on advanced retail sales, the University of Michigan confidence survey's and business inventories all coming in below expectations. Minutes released this week from the latest FOMC policy meeting cited "little change" in the economic outlook from the prior meeting although several members did note expectations for cessation of QE operations by year's end. However with the recent batch of US data continuing to disappoint and rising concerns over deteriorating conditions in Europe, it's unlikely the central bank will move on monetary policy in the near-term and although gold would typically be supported on the notion of continued easing, investors seem to be more comfortable holding US dollars and equities as commodity prices continue to fall.
Prompting further losses on gold prices Friday were headlines out of Europe that ECB President Mario Draghi had cited that proceeds of any gold sales by the Cypriot central bank must be used to cover losses it may sustain from emergency loans to domestic commercial banks. While the notion of Cypress selling gold is likely to prove heavy for bullion, it is important to note that the central bank does manage 13.9 tons of the metal according to the World Gold Council. On the back of 2012 when banks added more than 534.6 tons to gold reserves, the most since 1964, the move suggests a possible shift in dynamics as several banks have now cut their gold forecasts for 2013.
Looking ahead to next week, investors will be closely eyeing data out of the US with inflation data early in the week likely to further weigh on gold. Consensus estimates for the March CPI print call for a flat read month on month with the year on year print expected to decline to 1.6% from 2.0%. Housing starts, building permits, industrial production and jobless claims are also on tap with US data becoming increasingly important amid talk of a possible halt to QE.
From a technical standpoint, gold has now broken the key support in the range noted over the past few months at $1550-$1555 with price action this week clearing the 2012 lows at $1526.84 to close just above the $1500 threshold after a brief dip below. The Friday decline marks the largest since February 29th 2012 with daily RSI closing just below the 30-oversold threshold. Key support now rests at the 78.6% Fibonacci extension taken from the decline off the record all-time highs achieved in 2011 at $1482. This level along with $1445 were clear pivots in price action back in 2011 and are likely offer similar pivotal plays on the way down. Near-term resistance stands at $1527 with only a breach back above the $1550-1555 range negating further losses in the near-term. -MB