Fundamental Forecast for Gold: Bullish
- Gold Pullback May Prove Short-lived, Copper Looks To China Data
- What To Make of Gold’s Bullish Move
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Gold price are sharply higher on the week with the precious metal up nearly 3% to trade at $1315 ahead of the New York close on Friday. Thursday saw bullion post its largest daily range in nine months as prices surged through key technical levels before teetering out just above the May high. The move comes amid escalating geopolitical tensions in the Middle East and a more dovish tone from the FOMC this week as equities continued to march higher. But does this really change things for the broader gold outlook? The answer is simply- Yes.
As expected the central bank tapered QE purchases by another $10billion this week bringing the monthly pace of asset purchases down to $35billion. The accompanying quarterly projections however showed a slight shift in the committee’s outlook on interest rates with both the timing and the longer-run rate expectations suggesting a greater leniency towards a more accommodative stance on monetary policy. During her presser, central bank chair also talked down the threat of inflation suggesting that the data remains “noisy” and that underlying metrics remain in line with the Fed’s broader expectations.
The event saw the Dow Jones FXCM Dollar Index (Ticker:USDOLLAR) press into fresh monthly lows with gold initially testing the bottom of a key support range into 1260 before mounting a massive rally the following day that pushed prices back above the $1300 barrier. With interest rate expectations getting kicked out even further, rising geo-political tensions abroad and equities pressing fresh record highs, gold seems to have caught a bid here with the technical outlook shifting the topside with the breach above $1286.
Thursday’s rally broke through a confluence of key technical metrics including trendline resistance dating back to April, a longer-dating trendline resistance dating back to the 2012 high, the 61.8% retracement of the decline off the May high, the 200 & 50-day moving averages AND the weekly opening range high. Bottom line: the medium-term focus on gold shifts to the topside while above $1286 with a breach above key resistance at 1316/21targeting the 61.8% retracement of the decline off the 2014 high at $1334. A move back sub-1260/70 would be needed to shift the outlook back to the short-side of the trade.
Looking ahead into next week investors will be closely eyeing the final read on 1Q GDP with consensus estimates calling for another downward revision from an annualized -1.0% q/q to -1.8% q/q. Durable goods orders and housing data are also on the docket with existing home sales, new home sales and the Case Shiller home price index on tap. The USD remains in a vulnerable state heading into the releases and should the data disappoint, look for gold to remain well supported with a pullback early next likely to offer more favorable long-entries.
---Written by Michael Boutros, Currency Strategist with DailyFX
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