Gold Carves Weekly Outside Reversal Post FOMC

Fundamental Forecast for Gold:Bullish

Gold prices are sharply higher this week with the precious metal advancing 2.14% to trade at 1183 ahead of the New York close on Friday. The advance comes on the back of the FOMC policy meeting where Yellen and company talked down expectations for a mid-2015 rate hike with the central bank lowering expectations for growth and inflation. The release prompted a massive bout of profit taking on the greenback with the Dow Jones FXCM U.S. Dollar Index (Ticker: USDOLLAR) marking its single largest weekly decline since August of 2013 as Gold rebounded off a critical weekly support range.

Even though the FOMC removed the ‘patience’ language from the forward-guidance, the updated projections coming out of the central bank dragged on the dollar as Fed officials pushed back their interest rate forecast. Indeed, the downward shift in the interest rate dot-plot raises the risk of seeing the Fed retain the zero-interest rate policy (ZIRP) into the second-half of the year, with the normalization cycle likely be on a more gradual trajectory. Accordingly, the USD may get a brief respite from its recent rally with gold set to stage a near-term recovery amid softer interest rate expectations and a subdued outlook for inflation.

Looking into next week, traders will be closely eyeing key US data points with the Consumer Price Index (CPI), Durable Goods Orders & the final read on the 4Q Gross Domestic Product (GDP) report on tap. Despite the cautions tone laid out by Chair Yellen, stickiness in the core rate of inflation along with an upward rising in the growth rate may cap dollar-losses in the days ahead as market participants now anticipate the central bank to take a softer approach in the normalization cycle.

From a technical standpoint, gold has now rebounded off the key support region we’ve been noting over the past few weeks at 1150/51. Price action this week completes a sizeable key outside reversal candle off of a critical support region with the rally taking prices briefly through the 23.6% retracement of the decline off the January highs at 1181 before settling just below. Look for near-term support at 1167/68 which is defined by the March 18th reversal-day close & the January stretch low.