Fundamental Forecast for Gold: Bearish
- Gold at a Long Term Trendline
- Gold Prices Lose their Luster - Watch for Further Declines
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Gold prices plummeted for a fifth consecutive week with the precious metal down nearly 4.3% to trade at 1085 ahead of the New York close on Friday. The sharpest move for bullion came early in the session after prices broke below key support last week with continued strength in the dollar exacerbating the decline. Although the broader outlook for gold remains bleak, prices have responded to initial support and key event risk into the close of the month could offer a short reprieve to the battered metal.
The FOMC monetary policy meeting will be the main event next week with the central bank likely to reiterate its readiness to move on interest rates as US economic data continues to improve. On the back of last week’s Humphry Hawkins testimony it’s unlikely we will get any new material information from the release except a more updated view on where the committee stands on the outlook for monetary policy. Should the statement show a growing dissent among the members with regards to maintaining the Fed’s zero interest rate policy (ZIRP), look for the greenback to extend its advance to the detriment of gold. With market participants largely expecting liftoff this year, the risk remains to downside for the dollar if the central bank cites a more cautious/reserved outlook for growth & inflation. Such a scenario would likely limit losses for bullion which was battered down to a 5 ½ year low this week.
We noted last week that, “From a technical standpoint, gold broke below key support and the technical damage done leaves prices vulnerable while below 1150.” The subsequent sell-off saw a decline of more than $55 at its lows with this week’s range marking the largest since late November and the largest weekly decline since late October. The entirety of the week’s range was set at the open with prices encountering median-line support dating back to the 2014 high as weekly momentum approached 30-support.
Note that gold is vulnerable for a rebound at these levels heading into the start of next week. Near-term resistance stands at the 2014 low at 1130 with our bearish invalidation level steady at 1150. A break below ML support (~1070/73) targets objectives at the 1044/53 backed by a Fibonacci confluence lower down at 975/80. Keep in mind we’ll be heading into the close of the month with a break of the July opening range having already attained a late-month low & key US event risk on tap.