Gold Plummets 6% Ahead of FOMC Minutes– Bearish Below $1405
Gold Plummets 6% Ahead of FOMC Minutes– Bearish Below $1405
Fundamental Forecast for Gold: Bearish
Gold remained under substantial pressure this week with the precious metal down nearly 6.4% (its largest decline in four weeks) to trade at $1357 at the close of trade in New York on Friday. The decline marks the first seven day losing streak for bullion in four years and while our broader bias remains weighted to the downside, the risk for a near-term correction next week puts a neutral tone on gold with rallies likely to offer more favorable entries higher up.
Expectations that the Federal Reserve will start to taper its asset purchases have continued to weigh on gold prices as a growing number of central bank officials adopt a more neutral tone on monetary policy. Indeed comments made by numerous FOMC members have supported this notion with San Francisco Fed President John Williams citing that the central bank my scale back on easing measures ‘as early as this summer’ with the possibility of QE cessation by the end of the year ‘if all goes as hoped.’ As such, traders have remained heavy on gold amid the phenomenal rally in equities and persistent strength in the US Dollar.
Looking ahead to next week, traders will be closely eyeing economic data out of the US with existing home sales, new home sales, and the release of the minutes from the latest FOMC policy meeting on tap. Both housing prints are expected to show continued improvement in the sector with the minutes presenting the most significant event risk for gold. Should the minutes show a greater willingness among committee members to begin scaling back QE operations, look for gold to challenge the April lows as dollar strength persists.
The decline has been well anticipated with bullion achieving our primary objective range noted last week between $1385- $1397. From a technical standpoint, gold has now broken below the 61.8% retracement taken from the advance off last month’s low at $1385 with prices closing out the week just above the 78.6% retracement at $1357. A break below this level eyes immediate support targets at $1340 (88.6% retracement) and the April low at $1321 with our medium-term objective targeting the range between $1307- $1302. Note that Daily RSI has now broken below the 30-threshold for the first time since the onset of the major decline seen on April 12th and suggests that the yellow metal remains at risk as we head into next week. Interim resistance now stands at $1405 with only a daily close above $1424 invalidating our broader directional bias. -MB
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