Fundamental Forecast for Gold:Neutral
- Gold Up on Safe-Haven Buys. Copper, Oil Drop as China Factories Slow
- Gold Price Rally Faces First Big Test
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Gold prices surged for a second consecutive week with the precious metal rallying 3.5% to trade at 1153 head of the New York close on Friday. The advance comes amid the largest decline in equity markets seen in nearly 4 years with the S&P 500 down more than 4.6% on the week. The dollar has tumbled alongside broader risk with gold posting its largest weekly rally since January as growing global growth concerns weighed heavily on market sentiment.
Expectations for a September Fed rate hike have continued to diminish after the release of minutes from the July 29th monetary policy meeting showed growing concern over the strengthening dollar and subdued inflation alongside the slowdown in China. It’s important to note that the policy statement represents central bank sentiment preceding China’s effort to devalue the Yuan and the subsequent sell-off in global equity markets, setting the bar even higher for a liftoff in the second half of the year.
Looking ahead to next week, fresh commentary coming out of the Fed Economic Symposium in Jackson Hole, Wyoming may fuel further volatility in interest rate expectations amid the ongoing deterioration in global market sentiment. In addition, the second revision on 2Q GDP will also be in focus with consensus estimates calling for an upward revision to an annualized rate of 3.2% q/q, up from 2.3%. With the threshold for a 2015 rate hike drifting higher, a weaker-than-anticipated print could further exacerbate the decline in the greenback and heighten the appeal of bullion.
From a technical standpoint, gold has now rallied nearly 8% off the lows with the advance eyeing a resistance confluence just higher at 1170 where the 61.8% retracement of the May decline converges on the upper median-line parallel extending off the 2014 high. A breach above this region targets resistance objectives at the yearly open at 1182 backed closely by the 200-day moving average at 1188 with subsequent targets eyed at the 52-week moving average at 1196. Key support & bullish invalidation rests lower at 1130 with move back below the low-day close at 1096 needed for resumption of the broader downtrend. Bottom line: we’ll be looking for a stretch higher early next week before a pullback into support.