Gold Prices Retreat from Monthly Highs as USD Mounts Counter-Offensive

Fundamental Forecast for Gold:Neutral

Gold prices are markedly lower this week with the precious metal down 1.70% to trade at 1281 ahead of the New York close on Friday. The losses come amid a rebound in the dollar with the DXY up more than 0.5%. Equities also continued to outperform with all three major U.S. indices closing higher on the week as U.S. tax policy headlines continuing to prop broader risk appetite.

Heading into next week traders will be closely eyeing the release of key U.S. data prints with September durable goods orders and the first read on third quarter GDP on tap. Consensus estimates are calling for an annualized 2.6% q/q print on growth with the core personal consumption expenditure (PCE), the Fed’s preferred gauge of inflation, expected to rise to 1.3 q/q.

Markets remain firm on a December rate-hike with Fed Fund Futures now pricing a more than 90% likelihood for an increase of 25bps before the close of the year. That said, an in-line print next week would unlikely move the needle for the outlook of monetary policy and the risk remains weighted to the downside on the dollar should the data miss. As it pertains to gold, look for strong data to limit topside advances near-term and while prices look vulnerable into the start of the week, the broader outlook remains constructive.

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Gold Prices Retreat from Monthly Highs as USD Mounts Counter-Offensive
  • A summary of IG Client Sentimentshows traders are net-long Gold - the ratio stands at +3.59 (78.2% of traders are long)- bearishreading
  • Long positions are 1.9% lower than yesterday and 5.8% lower from last week
  • Short positions are 6.9% higher than yesterday and 13.8% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Spot Gold price trend may soon reverse higher despite the fact traders remain net-long.

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Gold Daily

Gold Prices Retreat from Monthly Highs as USD Mounts Counter-Offensive

Last week we noted that prices had, “posted 6-days of consecutive advances and leaves gold vulnerable for some sort of exhaustion pullback before continuing higher.” Indeed prices pulled back this week with decline rebounding off monthly-open support at 1279. Interim resistance stands at 1295 with a breach above 1309 needed to fuel the next leg higher targeting the 61.8% retracement at 1309 & the yearly high-day close at 1346. A break lower from here still has to contend with a key support zone at 1263/67.

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Gold 240min

Gold Prices Retreat from Monthly Highs as USD Mounts Counter-Offensive

Gold Prices Retreat from Monthly Highs as USD Mounts Counter-Offensive

We’ve re-adjusted our slope from last week with basic trendline support off the monthly lows further highlighting the near-term support confluence at the 61.8% retracement / monthly open at 1278/79. Look for a reaction there with a break lower risking a larger correction toward 1263 & 1240-(broader bullish invalidation).

Bottom line: from a trading standpoint I’ll be looking for prices to stabilize above this level to suggest a more significant low is in place. A daily close below would risk a drop into subsequent support targets- such a scenario would have me looking for exhaustion / long-entries. A breach / close above 1295 would open things up and shift the focus towards the monthly opening-range highs.

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

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