Gold Recovery Faces First Hurdle Ahead of Fed Speak; Retail Sales

Fundamental Forecast for Gold: Neutral

Gold prices continued to march higher for a second consecutive week with the precious metal rallying more than 3% to trade at 1176 ahead of the New York close on Friday. The advance comes amid weakness in the greenback and alongside continued gains in global equity markets. While the medium-term outlook remains weighted to the topside, the immediate advance is at risk heading into the start of next week after prices turned from technical resistance on Thursday.

Despite a miss on the headline Non-Farm Payrolls report on Friday, wage growth figures marked the fastest pace of growth since 2009 with print of 2.9% y/y. On the back of this recent update on the labor markets, traders will be lending a keen ear to a fresh batch of central bank commentary with Minneapolis Fed President Neel Kashkari, Fed Governor Jerome Powell, Philadelphia Fed President Patrick Harker, Chicago Fed President Charles Evans and Chair Janet Yellen slated for speeches next week (all 2017 voting members). Highlighting the economic docket next week is the release of the December retail sales figures on Friday with consensus estimates calling for a print of 0.6%, up from a previous read of just 0.1%. A positive development should keep interest rate expectations well-anchored ahead of the next rate decision on February 1 especially as Fed Fund Futures highlight a greater than 60% probability for a June rate-hike.

XAUUSD Speculative Sentiment Index

Gold Recovery Faces First Hurdle Ahead of Fed Speak; Retail Sales

A summary of the DailyFX Speculative Sentiment Index (SSI) shows traders are net long Gold- the ratio stands at +1.82 It’s important to note that SSI has continued to narrow from the 2016-extreme of +3.59 and highlights the threat of continued strength in gold prices. That said, I’ll be looking for a continued build in short exposure / a flip to next short to suggest a that more significant low is in place.

Gold Daily

Gold Recovery Faces First Hurdle Ahead of Fed Speak; Retail Sales

In our quarterly forecast published back in December, we noted that prices were heading into a critical support level at 1120/30- this region is defined by the 161.8% extension of the decline off the yearly highs, the 76.4% retracement of the advance off the 2015 low, the 2014 low and the lower parallel of the embedded descending parallel formation. The subsequent rebound took out our initial target at 1171 with this week’s rally being capped by near-term confluence resistance at 1182/83 where the 23.6% retracement of the July decline converges on a median-line parallel extending off the March 2016 high.

Bottom line, the risk is for a near-term pullback early next week with the medium-term outlook weighted to the topside while above the monthly / yearly open at 1150. A breach higher targets confluence resistance targets at 1200/03 & 1215/15- both areas of interest for possible exhaustion / short-entries.

---Written by Michael Boutros, Currency Strategist with DailyFX

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