Fundamental Forecast for Gold: Bullish
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Gold prices retreated this week with the precious metal off by more than 1% to trade at 1090 ahead of the New York close on Friday. The pullback comes amid extreme volatility in broader risk assets with the major U.S. equity indices down nearly 9% since the start of 2016. Indeed gold seems to have regained its haven status in the near-term as traders seek shelter from the ongoing market turmoil and although prices were lower this week, bullion is still 2.74% in the black for 2016.
Comments from St Louis Fed President James Bullard, a voting FOMC member, roiled markets on Thursday when he suggested that the sharp decline in oil prices may in fact not be transitory. The recent remarks are a stark contrast to the central bank hawk’s stance on policy and suggest that the persistent weakness in energy prices may impact the real economy and influence the policy outlook in 2016. Ongoing concerns over a material slowdown in China, rising geopolitical tensions in the Middle East alongside the recent route in global equity markets, may continue to prop gold prices in the near-term as investors seek the perceived relative safety of the precious metal.
Looking ahead to next week, traders will be closely eyeing inflation data out of the U.S. with the December CPI figures highlighting the docket. With the global market sell-off & plummeting energy prices dominating the headlines, a weaker than expected print on U.S. inflation next week could fuel further strength in the yellow metal as market participants push back interest rate expectations with Fed fund futures now pricing the next rate hike to be in October.
From a technical standpoint, gold has continued to trade within the confines of an ascending median-line formation extending off the November/December lows with this week’s pullback rebounding off the 61.8% retracement of the advance at 1072. A break below this mark is needed to put the short-side back into play with interim resistance seen at 1098 backed by the median-line / 1116/18. Key resistance stands higher at 1135/39 where the 200day moving average converges on a downtrend resistance extending off the September high & the 61.8% retracement of the decline. Bottom line- it’s make-or-break next week for gold & although the longer-term outlook remains bearish, the recent advance is still in focus while above 1072.
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