Gold at 4-Month Lows on Strong USD- GDP, NFPs to Drive December Open
Fundamental Forecast for Gold:Neutral
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Gold nudged higher this week with the precious metal advancing 0.66% to trade at $1251 ahead of the New York close on Friday. The end of November trade marks the largest decline in five months as taper expectations and strength in the greenback kept prices under pressure. Price action was lackluster this week amid the shortened holiday schedule and a quiet economic docket with the pace set to pick up as we open up December trade.
Aside from the flurry of central bank rate decisions next week from the likes of the RBA, ECB, BoE and the BoC, traders will be focused on US economic data with the preliminary read on third quarter GDP & the November non-farm payrolls report on tap. Consensus estimates are calling for an upward revision from last month’s blowout GDP print of 2.8% q/q to 3.1% q/q. The November employment report is also expected to show continued strength in the labor markets with estimates calling for a read of 183K as unemployment ticks down to 7.2% from 7.3%. The risk to gold remains to the downside on stronger US data as the case for continued Fed accommodation becomes more difficult to warrant against the improving economic outlook. However, with expectations for US metrics to remain rather frothy heading into the close of the year, weaker prints could set-back or even diminish expectations for a shift in policy at the December FOMC meeting, thereby limiting the downside for gold prices in the near-term.
As we continue to look to broader central bank policy for cues, it’s also important to note that China, which is expected to overtake India as the biggest consumer of gold this year, saw a pickup in demand this week as the price of gold hit fresh 4 ½ month lows at $1239. “Chinese buying” has largely been a supportive headline for the metal with trading volumes in world’s second largest economy hitting 7-week highs. However with the current central bank outlook and strength in greenback, rallies in bullion remain at risk as we head into the open of December trade with price action over the next few sessions likely to set the tone for the close of the year.
From a technical standpoint, gold prices rebounded off key support this week at a confluence of Fibonacci levels at 1233/34 with the extreme lows making a clean reversal off of an Andrew’s pitchfork bisector dating back to the August high. Divergence has been identified on the daily momentum signature and the risk for a correction into the open of December trade has us looking higher in the near-term for possible short entries. Topside resistance targets are eyed at $1256 and $1268/73 with a break above this threshold risking a more meaningful correction higher. A break/close below $1233 puts the larger trend back into focus with support targets noted at $1209 and $1179/81. With the USDOLLAR trading at resistance below 10,650, we will watch price action in the greenback closely with the December opening range likely to offer further clarity on a directional bias heading into the close of 2013. - MB