Fundamental Forecast for Gold:Neutral
- Gold Maintains Constructive Look on Swing Basis
- Gold Searches For Direction Ahead of US Data, Crude Oil Plummets
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Gold prices are softer at the close of trade this week with the precious metal off by 0.40% to trade at $1304 ahead of the New York close on Friday. Bullion had held a tight range below key resistance at $1321 for the majority of the week before tumbling to key support at $1292 on Friday. The losses were short lived however with headlines over the escalating situation in Ukraine prompting a reversal that saw prices pare more than half the day’s decline. With geopolitical tensions on the rise, gold could remain supported with key US data next week and the Jackson Hole Economic Symposium likely to drive prices.
Weaker than expected US retail sales, empire manufacturing and consumer confidence this week has continued to cap USD advances near-term with the Dow Jones FXCM Dollar Index struggling to close the week above key resistance at 10,564. The August Preliminary University of Michigan Consumer Confidence survey released on Friday fell short of market expectations with a print of 79.2, missing calls for a read of 82.5 and weaker than last month’s print of 81.8. The data marks the lowest read on the survey since November of last year and follows a string of weaker-than-anticipated metrics for the US.
Looking ahead to next week traders will be closely eyeing the return of more pertinent US economic data with CPI, housing metrics and the release of the FOMC minutes from the July 30th meeting on tap. Inflation data on Tuesday is expected to show a slight softening in the annualized rate with consensus estimates calling for a down tick to 2% y/y with core inflation widely expected to hold at 1.9% y/y. Minutes from the latest FOMC policy meeting are released on Wednesday and investors will be closely eying the transcript for clues as to the committees outlook on interest rates and the economy. Look for gold to trade heavy if the minutes show a greater willingness amongst policy makers to begin normalizing sooner rather than later with headlines out of Jackson Hole next week also likely to spur added volatility in gold and USD crosses.
From a technical standpoint, gold remains within the confines of a well-defined descending channel formation off last month’s high. Friday’s sell-off took gold into key support at $1292 before rebounding sharply mid-day in New York after reports that Ukrainian forces had destroyed an armed Russian convoy that was crossing the border into Ukraine. This level is defined by confluence of the 50% retracement from the advance off the June lows and the 61.8% extension from the decline off the July high. The sheer magnitude of the rebound took gold back into the initial weekly opening range and as such we’ll maintain a neutral bias heading into next week’s event risk while noting that our bearish invalidation level remains unchanged at $1321. A break sub-$1292 is needed to re-assert our bearish outlook with such a scenario eyeing key support at $1260/68. A breach of the highs targets channel resistance dating back to the yearly high with subsequent resistance objectives seen at $1334 and the July high at $1345.