Fundamental Forecast for Gold: Neutral
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Gold prices were softer for the second consecutive week with the yellow metal sliding 0.38% to trade at $1388 ahead of the New York close on Friday. On the two year anniversary of the metal’s record high at $1920 traders remain uneasy as bullion remains out of favor after breaking below key support at $1550 earlier this year. But with war seemingly on the horizon and an improved US economic outlook, despite the lackluster recovery in the labor markets, gold remains precariously positioned as investors look to the Fed for guidance.
The August US non-farm payroll report released on Friday fueled a recovery in gold prices which had fallen as low as $1358 before the release. The data showed the addition of 169K jobs last month, missing expectations for a print of 180K, with the unemployment rate unexpectedly falling to 7.3%, its lowest level since December of 2008. Although the headline data seemed more or less upbeat, a deeper look into the metrics revealed a large revision to last month’s print from 162K to just 104K and a massive contraction in the labor pool with the participation rate falling from 63.4% to 63.2%, its lowest since August of 1978. This alarming read has market participants questioning the September timeframe for the Fed to begin tapering QE operations with the USD trading heavy on the session as gold pared a portion of the losses sustained earlier in the week. Although it’s unlikely any singular print will alter Fed policy, the data could limit the magnitude of the taper as the central bank seeks to limit the spillover effects of its exits strategy.
The economic docket thins out next week highlighted by the August retail sales data and the September preliminary University of Michigan confidence report on Friday. Broader market sentiment is likely to drive price action early next week as headlines on the proposed US strike on Syria continue to dominate the news wires with market participants eagerly awaiting the September FOMC policy meeting on 18th-19th for clarity on how the central bank will exit the easing cycle.
From a technical standpoint, gold briefly broke below the 23.6% Fibonacci retracement taken off the June lows before rebounding off of the 100-day moving average at $1359. The metal has continued to trade within the confines of a well-defined ascending channel formation dating back to the 2013 low and while we maintain our bearish outlook below $1440/50, we look for a break of the monthly opening range (currently $1358 -$1416) for further clarity on a medium-term directional bias. MB
---Written by Michael Boutros, Currency Strategist with DailyFX
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