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Gold Snaps Three-Week Losing Streak, Soft U.S. CPI to Keep Prices Bid

Fundamental Forecast for Gold:Neutral

Gold prices snapped a three-week losing streak with the precious metal rallying 1.17% to trade at 1284 ahead of the New York close on Friday. The gains come on the back of weakness in the greenback with the U.S. Dollar Index (DXY) coming off of four-month highs. The sell-off in global benchmark equity indices have caught the markets attention as the likelihood of U.S. tax reform continue to diminish.

Looking ahead to next week, traders will be eyeing the release of the October U.S. Consumer Price Index (CPI) and retail sales on Wednesday. Although the Fed is widely expected to raise interest rates next month, continued signs of subdued price growth may keep the central bank on hold in the first half of 2018 amid the upcoming rotation within the FOMC.

With Governor Jerome Powel nominated to take the helm, the Fed appears to be on course to delivery three rate hikes per year. However, the upcoming appointments for the Vice Chair and New York Fed President may raise the risk for policy error as inflation continues to run below target. That said, gold may continue to shine amid uncertainty surrounding the U.S. monetary policy outlook and prices are likely to remain supported should a growing number of officials trim the longer-run forecast for the benchmark interest rate.

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Gold Snaps Three-Week Losing Streak, Soft U.S. CPI to Keep Prices Bid
  • A summary of IG Client Sentimentshows traders are net-long Gold - the ratio stands at +3.82 (79.3% of traders are long)- bearish reading
  • Long positions are 2.9% higher than yesterday and 3.1% higher from last week
  • Short positions are 0.9% higher than yesterday and 17.8% 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 more net-long than yesterday but less net-long from last week and the combination of current positioning and recent changes gives us a further mixed Spot Gold trading bias from a sentient standpoint.

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Gold Daily

Gold Snaps Three-Week Losing Streak, Soft U.S. CPI to Keep Prices Bid

Our ‘bottom line’ last week noted that, “heading into November trade I’ll be looking for an exhaustion low, preferably early in the month, with a breach above this near-term descending slope needed to get thing going on the long-side.” Gold prices rebounded off key support this week at 1263/67- a region defined by the 38.2% retracement of the December 2016 advance, the 61.8% retracement of the July rally and the 200-day moving average. Note that this range also represents the monthly opening-range lows and if broken, would shift the focus back towards slope support backed by broader bullish invalidation at 1240/43.

Gold 240min

Gold Snaps Three-Week Losing Streak, Soft U.S. CPI to Keep Prices Bid

Gold Snaps Three-Week Losing Streak, Soft U.S. CPI to Keep Prices Bid

A closer look at near-term price action sees gold breaking the topside of the descending channel formation extending off the October high with the advance taking gold prices just below the 61.8% retracement at 1289 ahead of the close. Heading into next week, the focus remains higher while above 1272 with a breach targeting 1299 backed by more significant resistance at 1305/09. Bottom line: IF this breakout is the real deal, look to fade weakness while above the monthly open (1271).

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

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