Fundamental Forecast for Gold:Neutral
- Crude Soars As Iraqi Supply Fears Reignite, Gold Gains On Haven Demand
- Gold Reverses from Fibonacci Level and 200 DMA
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Gold snapped a three-week losing streak with an advance of 1.44% to trade at $1312 ahead of the New York close on Friday. The advance comes amid continued weakness in broader equity markets with all three US stock indices posting weekly losses across the board. With mounting concerns over new US military involvement in Iraq and the ongoing turmoil seen in Gaza and Ukraine, the onset of more classic risk aversion flows have been identified with gold likely biggest beneficiary. However, with the precious metal closing the week just below key near-term resistance, the focus shifts to the initial August range.
US data flow this week has largely remained constructive with ISM non-manufacturing, the June Trade Balance and factory orders all topping expectations. The greenback has remained well supported as a result with the Dow Jones FXCM Dollar Index (Ticker:USDOLLAR) continuing to hold just below the 200-day moving average at 10,544. The dollar remains vulnerable for a near-term correction lower at the close of the week and such a scenario could fuel further advances in gold if near-term resistance at$1321 is overtaken.
Looking ahead to next week the US economic docket will be rather light with only retail sales, industrial production and the University of Michigan Confidence survey on tap. As such, look for broader market sentiment to continue driving price action with all eyes on the growing geo-political tensions in the Middle East and Ukraine. Should the conflicts intensify or if the recent stock sell-off persists, look for gold to remain well supported with a breach above near-term resistance keeping our medium-term bias weighted to the topside heading deeper into August trade.
From a technical standpoint, this week’s rally saw a break of the initial monthly opening range at the 50-day moving average ($1296) before rebounding off key near-term resistance at $1320/21. This region is defined by the 38.2% Fibonacci extension taken from the late-December rally and the 61.8% retracement of the July decline and will serve as our bearish invalidation level- a breach above this threshold shifts the focus higher in gold heading into the August close with such a scenario eyeing subsequent resistance targets at $1334, $1345 and $1367/71. Note that the July sell-off saw daily momentum hold support at 40, suggesting that last month’s pullback may have been corrective in nature. Ultimately a breach/close above $1321 / RSI break above 60 is needed to validate this assertion. Bullish invalidation rests at $1292 with only a break the 200-day moving average and the August opening range low at $1280 shifting the focus back to the short-side. Support targets are eyed approximately every $10 sub-$1280 with more significant technical support seen at the 61.8% Fibonacci extension taken off the decline off the 2014 high at $1251.