Fundamental Forecast for Gold:Neutral
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Gold prices are higher for a second consecutive week with the precious metal up 2.33% to trade at 1183 ahead of the New York close on Friday. The advance comes alongside a move higher in broader risk assets as the dollar remained under pressure for a third consecutive week of losses. Although this week’s price action does keep the broader topside bias in play, bullion prices may be at risk for a near-term correction lower after rallying more than 7% off the October low.
A batch of weaker-than-expected U.S. economic data continued to dampen expectations for higher rates this year with a miss on retail sales coming on the heels off a dismal employment report last week. Rhetoric out of the central bank has also alluded to ongoing concerns within the committee with Governor Daniel Tarullo citing that the U.S. economy has been growing barely above trend for a while and that he, “wouldn’t expect it appropriate to raise rates,” this year.
On the back of the dovish remarks, a fresh round of commentary from Fed officials next week will be central focus with Fed Governor Lael Brainard, Richmond Fed Jeffrey Lacker, New York Fed President William Dudley, Fed Governor Jerome Powell along with Chair Yellen on tap. In addition, key data out of China is likely to heavily impact price action with 3Q GDP figures expected to slow to an annualized rate of 6.8%, down from 7.0% (slowest pace since March of 2009). Should the data further fuel concerns of a material slowdown in global growth, look for gold to remain well supported as expectations for a pro-longed zero interest rate policy (ZIRP) continue to weigh on the greenback.
Gold has suffered the longest stretch of consecutive quarterly losses since 1997 as improving U.S. data fueled expectations for a shift in monetary policy. However the recent softness in data, alongside concerns over the macro economic outlook have all but diminished expectations for a rate hike this year – a positive for gold which tends to perform well in low-yielding environments.
From a technical standpoint gold broke above a key threshold of resistance at 1151/55 with both daily & weekly momentum stretching to their highest levels since January. This marked change in behavior continues to suggest further upside potential remains with interim resistance at the 50% retracement at 1189 backed by a key Fibonacci confluence at 1194/98 & the May high-day close at 1207. Prices are vulnerable for move lower heading into next week but the medium-term outlook remains constructive while above the October 2nd low/reversal-day close at 1138. Bottom line: looking for a pullback before stretching into new highs.