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Gold Flirts with Breakdown Support - Outlook Mired by Macro Concerns

Gold Flirts with Breakdown Support- Outlook Mired by Macro Concerns

Fundamental Forecast for Gold: Neutral

Gold prices fell for a third consecutive week with the precious metal off by 0.82% to trade at $1159 ahead of the New York close on Friday. The losses come amid a tumultuous week for markets as headlines out of Greece and China continue to fuel sharp movements in global equity indices. The dollar remains at risk after dovish commentary from the Fed weighed on interest rate expectations with the Dow Jones FXCM U.S. Dollar index (Ticker: USDOLLAR) responding to resistance up at 12008 early in the week. For gold, prices are at a make-or-break point of multi-year support with the short bias at risk while above this key threshold.

Minutes from the latest FOMC policy meeting showed increased concerns among committee members about the outlook for macro & domestic growth with several officials specifically voicing uncertainty over Greece, China and the possibility of weaker U.S. growth in the first half. The commentary comes just as the IMF lowered its global growth outlook to the slowest pace of growth since the financial crisis. With such headwinds facing the global economy, the decision to begin raising rates becomes much more difficult for the Fed with interest rate expectations likely to get pushed back further as concerns over contagion take root. In turn, advances in the greenback are likely to remain limited in the near-term which could offer a reprieve to the recent losses seen in gold.

Looking beyond the Greek headlines which remain the most significant event risk, the June Advanced Retail Sales report & the Consumer Price Index will be in focus next week. Sales are widely expected to have softened last month with consensus estimates calling for a print of just 0.3% m/m, down from 1.2% in May. Inflation data on Friday will highlight the docket and may have a more significant impact on gold amid expectations of an uptick in core CPI to an annualized rate of 1.8%. In light of last week’s Fed commentary, traders will be looking for continued strength in US data to validate the FOMC’s constructive outlook on domestic growth with the outlook on gold clouded by the ongoing drama unfolding on the global stage. That said, prices have approached a key support zone and heading into next week the focus will be on a break of the initial June opening range.

From a technical standpoint, gold tested a critical support range at 1142/51 this week. This region is defined by the 61.8% extension of the decline off the 2014/2015 highs, the March 2015 low and a longer-term 1.618% ext from the decline off the all-time record highs in 2011. Momentum has continued to coil up above this key support zone with daily RSI holding between 30-70 since March, its longest stretch since September of 2010. Weekly momentum is even more compelling with the longest stretch of ranging RSI since June of 2002. The lack of overbought / oversold conditions for such a prolonged duration of time suggests gold could be poised for the next “big” move in the coming weeks.

That said, the short-side remains vulnerable above key support near-term with initial resistance eyed at 1171. A breach above the yearly open at 1182 would be needed to suggest a more significant low has been put in with such a scenario eyeing objectives back into the 1200 mark. A break of support risks sharp losses for bullion with no significant support seen until 1105/10 backed by the 2010 low at 1044. Bottom line: the downtrend is at major support near-term and the immediate focus is on a break of the June opening range.