Fundamental Forecast for Gold:Bearish
- Key Reversals on USDOLLAR, Gold Post FOMC- March Range at Risk
- Gold Finds Reaction Area; End of Week Bounce?
- Sign up for DailyFX on Demand For Real-Time Gold Updates/Analysis Throughout the Week
Gold saw the largest weekly decline in four months this week with the precious metal off by more than 3.4% to trade at $1335 ahead of the New York close on Friday. The week began with a technical reversal off six-month highs ahead of the FOMC policy meeting on Wednesday which proved devastating for the bulls. While the Fed impact this week is a slight shift against the gold trade, the technical impact on prices may have a more lasting effect.
The central bank continued with its taper plans this month, cutting back the pace of Treasury & MBS purchases by $10billion to $55Billion per month. While the move was widely expected, a change in the language of the accompanying policy statement and the subsequent press conference with Fed Chair Janet Yellen saw the biggest impact on markets. The committee elected to leave out the 6.5% unemployment threshold, noting their “assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.” The shift into a more qualitative assessment coupled with the quarterly projections from the committee members does slightly pull forward interest rate expectations but continues to offer little clarity as to specific metrics the central bank will want to see before deciding to normalize policy.
With concerns over the geopolitical risks posed by the ongoing situation in Ukraine taking a back seat, gold remains vulnerable- especially in light of this week’s developments. Yellen’s tone is likely to keep the inflationary trade at bay for now and outside of a more profound risk sell-off, topside advances should remain limited. Heading into next week, traders will be closely eyeing US housing data including New Homes Sales & Pending Homes Sales and the third read on 4Q GDP. Consensus estimates are calling for an upward revision to fourth quarter growth to an annualized rate of 2.7% q/q, up from 2.4% q/q. Look for positive US data prints to continue to weigh on the gold trade to the benefit of the greenback.
From a technical standpoint, gold has not put in an outside reversal week with prices closing just above the 52-week moving average. The move back below the initial March opening range high now puts into question a false break scenario of the trendline dating back to the 2012 we saw last week. That said, although our broader outlook has shifted back down to the short side of gold we remain prudent while above the March low / open at $1225 with a close below needed to validate the turn in our medium-term outlook. Bottom line: the gold trade remains at risk while below $1357 with only a move surpassing this level putting the focus back towards the monthly highs. -MB