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Gold Rallies Into Critical Resistance Ahead Fed, NFPGold Rallies Into Critical Resistance Ahead Fed, NFP

Fundamental Forecast for Gold:Neutral

Gold prices are firmer for the second consecutive week with the precious metal up 0.57% to trade at 1145 ahead of the New York close on Friday. The advance comes amid a volatile week in global markets as speculation surrounding the Fed’s timing for a 2015 rate hike is re-kindled. Gold is now trading just below a critical level of resistance & while the immediate risk is for a pullback, a more bullish scenario may materialize heading into next key U.S. event risk.

Looking ahead to next week, the U.S. Non-Farm Payrolls report will be central focus with consensus estimates calling for print of 200K for the month of September with the unemployment rate seen steady at 5.1%. With only two FOMC meetings left until 2016, incoming U.S. data points will become increasingly important as the committee continues to suggest a 2015 lift off will be appropriate. Ahead of Friday’s release, traders will be lending a keen ear to central bank officials with slew of Fed speeches on tap next week as Chair Janet Yellen, Vice-Chair Stanley Fischer, Governor Lael Brainard, New York President William Dudley, Chicago President Charles Evans along with San Francisco President John Williams take the stage. Look for strong data / hawkish Fed rhetoric to limit gold strength in the near-term with prices reversing off significant multi-year resistance into the close of the week.

From a technical standpoint, gold has now approached & reacted to a critical level of resistance at the confluence of the upper median-line parallel extending of the 2015 high, the 78.6% retracement of the August decline, the August high-day close and basic channel resistance of the advance off the monthly lows at 1151/55. The risk for a correction lower off this key resistance noted earlier in the week, materialized on Friday with the pullback finding interim support at last week’s high (1141).

Although the broader outlook remains weighted to the downside, the advance off the monthly low continues to trade within a clean ascending median-line formation with the near-term bias weighted to the topside while above the September open at 1134/32 (bullish invalidation). A break below this week’s low at 1121 is needed to put the short-side back into focus. Bottom line: the trade remains constructive while within this formation with a breach of key resistance targeting resistance objectives at 1164 & 1170. Look for the NFP release on Friday to offer guidance as the October opening range takes shape.