As gold reaches towards a high not seen since early 2015, fuelled by uncertainty within oil and equities, there is mounting speculation that the week ahead could prove exceedingly bullish for the yellow metal. However, as the highly negative US economic data fails to materialise, there are just as many arguments for the downside as there are for the upside.
Gold finished the week strongly higher as mounting concerns over the stability and robustness of the US economy continued. As the rout in global equities and crude oil prices continued to mount, so too did the swing in sentiment against the US dollar. Adding to the selling pressure, were statements by Ex-Fed member Kocherlakota who intimated that negative rates are currently needed in the US. Subsequently, Gold was the net beneficiary of the unrest as capital flocked to safe havens, which led to the metal closing the week around the $1237.69 mark.
Looking ahead, gold is facing a bevy of US economic news, as well as the spectre of rising tensions in the Middle East. In particular, the risk of an escalation in Syria carries with it increased volatility for the metal. On the fundamentals front, monitor the US PPI and Core CPI results closely, which is forecast at -0.2% m/m, and 0.2% respectively. Subsequently, a strong result from those indicators could lead to a significant pullback for the precious metal.
From a technical perspective, gold’s price action has been strongly bullish throughout the week as it convincingly broke through the bearish trend line. However, the push has largely stalled at $1265.75 an ounce and, absent any negative US news, a retracement back towards the $1200 handle is a real possibility. At this point we maintain a neutral outlook until the metal re-establishes a strong trend. Support is currently in place for the pair at $1142.61, $1098.83, and $1072.22. Resistance exists on the upside at $1263.49, $1306.57, and $1331.06.
