Fundamental Forecast for Gold:Neutral
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Gold prices fell for a fourth consecutive week with the precious metal down nearly 0.3% to trade at 1081 ahead of the New York close on Friday. The decline comes alongside a sharp sell-off in equity markets with the major indices off by more than 3.5% on the week. Despite declines in the greenback, bullion has remained under pressure as the Federal Reserve signals that it may be ready to hike the benchmark interest rate hike for the first time in nearly a decade.
A slew of central bank rhetoric from the likes of Fed Chair Janet Yellen, Vice-Chair Stanley Fischer, Boston Fed President Eric Rosengren, St. Louis Fed President James Bullard and Richmond Fed President Jeffrey Lacker dominated headlines this week as officials continued to allude to a December rate hike. As markets remain fixated on central bank policy, gold has remained on the defensive as expectations for higher rates weigh on non-yielding assets.
Looking ahead to next week, markets will be closely eyeing the release of the October Consumer Price Index (CPI) on Tuesday. On the back of last week’s stellar Non-Farm Payrolls report, a strong print on inflation is likely to further anchor expectations for higher rates next month. Consensus estimates are calling for core CPI to hold at an annualized rate of 1.9% with the month-on-month figure expected to hold at 0.2%. With the Fed continuing to suggest that they remain on course to achieve the 2% inflation target over the policy horizon, gold prices will remain at risk to changes in the interest rate outlook.
From a technical standpoint, gold prices look to close the week just above the August low at 1081 and although the broader bearish outlook remains unchanged, decline maybe reaching a near-term exhaustion point. Last week we noted that the recent decline had seen an, “eight-day losing streak (longest since July) with prices at risk for further losses..” Since the October 15th highs at 1191 prices have fallen more than 9%, marking losses on 19 of the past 22 trade sessions with the daily momentum signature continuing to flatten out. My colleague Jamie Saettele summed it up best, it’s simply “too early to buy & too late to sell”.
Look for interim resistance at 1096/99 on a rebound with only a breach above former TL resistance dating back to the 2015 highs (~1112) invalidating the near-term downtrend. A break below the July low targets objectives at the 100% extension of the decline off the yearly high at 1067 and the broader 61.8% extension of the decline off the 2012 high at 1053. Bottom line: gold prices are at risk for a near-term rebound early next week which may offer more favorable short entries.