Deteriorating Sentiment to Fuel Gold Rebound- Supported Above 1080
Fundamental Forecast for Gold: Bullish
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Gold prices are sharply higher this week with the precious metal rallying nearly 3.9% to trade at 1102 ahead of the New York close on Friday. The gains come amid a tumultuous week for markets with the Dow Jones Index falling more than 5% during the first week of January, marking the weakest yearly start since at least 1896.
The December Non-Farm Payroll release on Friday topped estimates with a print of 292K as the unemployment rate held steady at 5%. The data fueled strength in the dollar and prompted a pullback in gold which had stretched into a fresh 2-month high. With the Fed on course to implement higher borrowing-costs in 2016, strength in U.S. data may fuel bets for a 1Q rate hike and dampen the long-term appeal of bullion. That said, a further deterioration in market sentiment may continue to support gold prices in the week ahead as growing concerns surrounding China drags on risk appetite.
On December 18th, after the Fed had made a historic move to hike the benchmark interest rate for the first time in nearly a decade, we noted that, “markets have already been pricing in this hike and moving forward the focus will be on both the timing & scope of future rate hikes. For gold, this alleviates some of the immediate bearishness heading into the start of the 2016 calendar year.” Indeed gold rallied four out of five sessions this week with Friday marking the first daily loss for the yellow metal.
From a technical standpoint, prices are trading within the confines of an ascending median-line formation off the late December lows with a breach above initial December opening range (which held into the close of the year) shifting the medium-term outlook to the topside. The rally extended as high as 1113 on Friday before turning over post-NFPs and although prices are vulnerable for a deeper pullback near-term, the trade remains constructive while above confluence support at the lower median-line parallel / 1079.
Resistance stands at the confluence of the 1.618% extension extending off the 2015 lows and the 50% retracement of the October decline at 1116/18, with key resistance eyed higher at 1135/39. This region is defined by 61.8% retracement, the upper median-line parallel & the 200-day moving average and may offer more solid structural resistance. Note that the daily momentum signature failed at 60 this week, suggesting that we could see a move lower before making another attempt at the highs. Bottom line: Looking to buy dips above 1079 targeting a fresh monthly high.