XAU/USD [2HR – 08/22/2014] Chart created using FXCM Marketscope
Fundamental Forecast for Gold: Bearish
- Gold Braces For Volatility Ahead of Yellen, Crude Oil Consolidates
- Gold Slipping Towards 200 DMA…Again
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Gold prices are sharply lower this week with the precious metal off by more than 2.1% to trade at $1276 ahead of the New York close on Friday. The decline marks the second weekly loss and takes bullion into fresh nine-week lows as the greenback continued to rip higher with the Dow Jones FXCM Dollar Index climbing nearly 1% in its single largest weekly range since mid-April.
A string of strong reports out of the US coupled with a slightly more hawkish tone to the minutes from the latest FOMC policy meeting has kept the dollar bulls in control with gold trading heavy as easing geopolitical concerns and a more upbeat assessment of the economy continued to buoy risk higher alongside the greenback. All eyes fell on Jackson Hole Wyoming on Friday for the Kansas City Economic Symposium with Janet Yellen’s keynote speech largely striking a balanced tone. The Fed Chair noted significant under-use of labor resources while citing room for wage increases that would remain rather benign on inflation. She seemed to play both side when it came to interest rates, noting that slower progress on goals may delay rate increases while faster progress would bring hikes sooner. The result offered little direction for gold prices which traded sideways into the close of the week after posting 5-days of consecutive declines to break into fresh monthly lows.
Looking ahead to next week, traders will be closely eyeing the second print for 2Q GDP with consensus estimates calling for a slight downward revision to an annualized pace of 3.9% from 4% q/q. July durable goods orders, pending home sales, and the final read for the August University of Michigan Confidence survey are also on tap next week and we’ll look for stronger data to broadly remain supportive of the dollar / limit gold advances. The biggest possible supportive variable for gold would be a more substantial sell-off in stocks with such a scenario likely to fuel risk-off flows into the perceived safety of the yellow metal. That said, the technical picture remains rather bleak.
From a technical standpoint, gold remains within the confines of a well-defined descending channel formation off last month’s high and our focus remains lower while below the 200-day moving average at $1284 with interim support seen at $1271. A break below this level eyes a key support zone at $1251/58 backed by $1233 and $1206. We’ll reserve $1292 as our bearish invalidation level with a breach above targeting key resistance at $1321.