Gold Primed for a Push Higher- Sell the Fed Rip
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Gold prices are softer this week with the precious metal down nearly 1% to trade at 1075 ahead of the New York close on Friday. The decline comes amid sharp losses in broader equity markets and on the heels of last week’s massive 2.7% advance with prices largely in consolidation above near-term support ahead of major event risk next week.
In addition to key inflation & housing data, global markets will be –fixated on the FOMC policy meeting next week when the central bank is widely expected to raise the benchmark interest rate for the first time in nearly a decade. Fed Futures are currently pricing a 72% chance of a 25basis point hike next week, putting pressure on bullion which pays no dividend and historically performs poorly in rising interest rate environments. That said, weakness in the greenback has kept prices a float with the Dow Jones FXCM US Dollar Index (Ticker USDOLLAR) down 0.3% this week.
With consensus estimates now calling for higher rates next week, traders will be lending more attention to the subsequent presser with Chair Janet Yellen. The emphasis will be on pace of future hikes and although the committee has continued to suggest that they remain “data dependent,” the accompanying Q&A session is likely to shed more light on the Fed’s stance.
Last week we noted, “Bottom line, the blow-off on a trade like this could linger for some time and the near-term focus is on confluence resistance just higher.” Prices held a tight range for the majority of the week before reversing off support at the 2015 low-day close (~1062) on Friday, marking an outside-day reversal candle in the process.
Prices are trading within the confines of a well-defined ascending pitchfork formation with Friday’s rally checking resistance at the median-line. We could get a minor pullback here but the near-immediate risk remains weighted to the topside while above today’s low with resistance seen at 1098-1101. This region is defined by a TL resistance pivot extending off yearly high & the 38.2% retracement of the October decline & the July low-week close and if breached would suggest a larger scale reversal may be underway.
That said, from a seasonality standpoint, gold prices are typically softer going into the close of the year and we’ll be looking for a high to sell next week. Interim support rests with at 1062 with a break below 1053 targeting 1044 (2010 low) and a more significant Fibonacci confluence at 975/80.