Gold Surpasses July High as Stocks Retreat- What’s Next?
Fundamental Forecast for US Dollar: Neutral
Gold Breaks Out; Confluence of Resistance Near 1400
Gold Rallies Despite Fed QE Cutback Cues in US Data – Now What?
Price & Time: Gold Breaks Major Resistance – Now What?
Gold prices are markedly higher at the close of trade this week with the yellow metal advancing more than 4.7% to close at $1376 in New York on Friday. The gains come amid a sell-off in broader equity markets with the both the Dow and the S&P down more than 2% on the week. Although the longer-term fundamental outlook for gold remains rather heavy, recent price action has shifted our focus higher in the near-term amid growing fears of a larger correction in equity markets.
Although market participants will be widely watching the Fed Economic Symposium at Jacksons Hole Wyoming, the event may have a limited impact on broader markets as Fed Chairman Ben Bernanke will not be attending this year. Vice Chairman Janet Yellen will be among the group of central bankers attending, but is not scheduled to speak, which further suggests that gold will continue to follow market trends amid the growing discussion at the Federal Reserve to begin tapering the asset purchase program.
Despite mounting speculation that the FOMC will scale back on QE operations at the September17-18th meeting, the meeting minutes due out on August 21st may offer further clarity as to the policy outlook and could set the tone for the remainder of the month as the break above interim resistance brings topside targets into view. Still, we will be closely eyeing price action in the USDOLLAR index as the greenback struggled to hold support on Friday.
From a technical standpoint, gold’s rally through the August opening range and the July highs puts a bullish near-term outlook with the metal closing at interim resistance at the 61.8% Fibonacci extension taken off the June lows at $1376. Note that daily RSI has now broken above the 60-threshold for the first time since August 2012 with price action surpassing the previous monthly high for the first time since October 2012- both constructive developments for gold. A breech here eyes subsequent topside resistance targets at $1400, $1415, and the 100% Fibonacci extension at $1440 with the broader outlook remaining bearish below $1487. Interim support rests at $1358 and $1339 with only a break back below $1300 shifting our near-term focus lower. -MB
Written by: Michael Boutros, Currency Strategist
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