Gold Outlook Hinges on FOMC- Taper Talk to Drive Prices
Fundamental Forecast for Gold:Neutral
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Gold prices were firmer on the week with the previous metal climbing 0.60% to trade at $1235 ahead of the New York close on Friday. The weekly tally downplays a substantial rally early in the week that saw prices climb as high as $1267 before sharply reversing course over the next two sessions. Although the broader outlook for gold remains weighted to the downside, all eyes turn to the FOMC next week for the medium-term as the investors look to Bernanke and Co. for clues as to the taper timeline.
Although the economic docket was rather light this week there was no shortage of volatility in bullion and despite the advance, prices remain vulnerable as investors look to major event risk next week. Stronger than expected retail sales figures released on Thursday combined with last week’s blowout non-farm payrolls report, have further fueled speculation that the Fed may be poised to taper this month. In turn gold advances remain capped in the near-term as the greenback re-asserts its footing.
While that data may not prompt immediate action from the Fed at the December meeting, it will become increasingly difficult for the central bank to justify maintaining such a high level of accommodation amid improving US metrics. Various central bank officials have also noted expectations for the Fed to begin to throttle back on its easting stance with RBA Governor Glen Stevens citing that he hopes the, “Fed starts tapering before too much longer.” While the prospects should ultimately prove supportive for the greenback & bearish for gold, if the committee offers a more cautious tone next week, gold price could catch a bid as we head into 2014. The larger question at hand is not if but when and gold traders will be looking to the Fed for answers come this Wednesday.
From a technical standpoint, gold remains at risk below $1268/70 with support seen lower at $1209/10. Look for the FOMC to offer guidance with a break below the monthly low targeting key technical support at $1179/81. Subsequent support targets are seen at $1151/57. A breach above the $1270 threshold risks a more meaningful correction into resistance targets at $1286 and $1304 with only a break above $1325 invalidating the broader downtrend. Note that although daily momentum has remained bearish territory the slope has flattened out and such indicators are likely to offer little guidance as we head into next week’s event risk. Things are likely to simmer down as we head into the policy decision and be wary of emotional price breaks as liquidity thins out ahead of the Holidays. - MB