Fundamental Forecast for Gold: Neutral
- Our Data Shows Gold Prices Likely to Continue Higher
- Oil at Fresh Low amid Unabated Stocks, Gold Jumps to Rate Delay
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Gold prices soared for a fourth consecutive week with the precious metal rallying more than 5% to trade at 1247 on Thursday evening in New York. The advance to fresh yearly highs comes amid the continued rout in global equity markets with weakness in the dollar & falling treasury yields driving demand for the perceived safety of the yellow metal.
In her two-day semi-annual Humphrey Hawkins testimony before congress, Fed Chair Janet Yellen maintained that the central bank remains on a wait-and-see approach as it pertained to normalizing monetary policy while at the same time leaving the door open for further easing. When pressed on the likelihood of negative interest rates, Yellen said that the notion was not, “off the table,” suggesting that the central acknowledges the recent slump in global markets and is ready to take further accommodative measures if necessary. Ironically, the remarks come less than 2-months after the Fed moved to hike rates for the first time in nearly a decade.
Further evidence of growing global growth concerns were apparent this week with the Swedish Riksbank deciding to cut interest rates deeper into negative territory. The move comes amid continued easing measures from global central banks – offering a tailwind to gold prices as uncertainty & tightening global growth fuel haven flows into the lower yielding, “safer” assets as a store of wealth.
As rate expectations from the Fed are pushed out further, look for persistent weakness in the dollar & increased volatility in broader risk markets to help prop-up bullion prices. Heading into next week, traders will be closely eyeing U.S. data with housing starts, building permits & industrial production data on tap. The January CPI figures highlight the docket next week with consensus estimates calling for core inflation to hold at 2.1% y/y. With the US labor market close to the Fed’s “natural rate” of unemployment, the inflation figures have become increasingly important as the Yellen & company remain committed to achieving the dual mandate of fostering maximum employment & price stability.
From a technical standpoint, gold has now broken through numerous resistance zones & while our broader outlook remains higher, we’ll want to tread lightly here on the back this recent advance. To put things in perspective, Thursday’s trade session saw the largest single-day range since December 2014 (6.49%) and the largest single-day advance since March 19th of 2009.
Interim resistance stands at the 2015 high-week close at 1293 backed by the 2015 high-day close at 1301 & the 200-week moving average at 1345. A look back at the 200-week moving average sees the MA offering clear resistance from late-1999 through the 2001 when prices finally broke higher. The average didn’t come back into play until 2013 when prices broke back below with bullion maintaining a steady trajectory lower into the close of 2015. We’ll be looking for this technical feature to offer resistance yet again on this advance. Expect some back-and-fill after this rally with interim support seen at 1177/81 Backed by our bullish invalidation level at 1155/56.
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