Key Points:
- Talk of the December rate hike has be fuelling the metal’s plunge.
- Technical bias is somewhat unclear so fundamentals will be driving prices this week.
- Increased risk appetite could finally see the 1200 handle broken.
Gold continued its decline, albeit at a greatly reduced pace relative to the prior week’s slip. Increasing rhetoric from multiple FOMC members suggesting that a December rate hike was basically a foregone conclusion was largely to blame but strong US data was also felt keenly by the metal. Looking ahead, the US Unemployment Claims will be back in focus for gold, as will the New Home Sales and the Markit Flash Manufacturing PMI results.
Gold behaved much as one would expect given the growing consensus that a US rate hike is now, effectively, a certainty. In fact, during the week, Bullard remarked that it would now require a ‘surprise’ to prevent the Fed from moving rates higher in the coming meeting. Additionally, the unexpected drop in the US Jobless Claims to 235K and the stronger US Retail Sales data set the metal up for another bearish week which, ultimately, brought it back to the 1207.37 mark.
From a technical perspective, gold should end the week much where it began it in the absence of a major fundamental upset. Largely, this comes as a result of the mixed technical signals and a rather robust zone of support around the 1200 handle. Namely, both the EMA and Parabolic SAR are highly bearish all whilst the RSI and Stochastic oscillators have trended into oversold territory. Without some fundamental results to shift the balance one way or the other, it seems unlikely that we will see the current historical level of support broken or an appreciable uptick in buying pressure.
Going forward, most of the economic data pertinent to gold will be released during Wednesday’s session. As a result, the metal could be in for a rather volatile day depending on whether or not the US can maintain its recent trend of better than expected fundamental results. Some of the key figures to keep an eye on will be the Core Durable Goods, Unemployment Claims, and Market Flash PMI numbers. However, don’t forget to take a look at the FOMC Meeting Minutes, due out late in Wednesday’s session.
Ultimately, this week is sure to test whether gold prices can sink below the 1200 handle which provided such strong support from late January through to early June. As outlined above, the technical bias remains somewhat uncertain and this should lead to a rather flat week. However, with an increasing appetite for risk, among other fundamental factors, there is potentially a stronger case for a downside breakout than there has been previously.