Gold Outlook: Fundamentals to lead gold’s price

Gold’s price moved in a sideways manner since last report. Today we are to discuss the fundamental challenges laid ahead for the precious metal as well as upcoming financial releases that may affect the direction of its price action. Finally, we will be concluding this report with a technical analysis of gold’s daily chart.   

The Fed’s stance

It should be noted that the Fed’s interest rate decision failed to move gold’s price as much as some analysts may have been expecting. The bank as expected remained on hold displaying a data dependence in its accompanying statement, yet the new dot plot in the bank’s economic projections moved higher,  implying that Fed policymakers are prepared to keep rates high for longer supporting the USD.

Yet in his press conference, Fed Chairman Powell stressed once again the bank’s data dependence. We also note that the Fed’s hawkishness was stressed after the release of the Fed’s interest rate decision by Philadelphia Fed President Harker as he stated that “If all of it happens to be as forecasted.

I think one rate cut would be appropriate by year’s end,” which contradicted the markets expectations for a scenario of two rate cuts, one in September and one in December. Should Fed policymakers continue to release hawkish statements we may see gold’s price slipping in the coming week.    

Fundamentals to lead

Overall we see the case for fundamentals to lead gold’s price. We note that the negative correlation of the USD with gold’s price was interrupted in the past week as both the USD index and gold’s price ended the week in the greens.

Nevertheless, we expect the negative correlation of the two trading instruments to be on display once again in the coming week and should we see the USD gaining further support, we may see gold’s price dropping.

At this point, we see the case for safe haven inflows for the USD stemming from the political uncertainty in France, to ease, which may be encouraging for gold traders.

Yet should we see tensions in the international political scene escalating, we may see the market’s initial reaction could create support for the USD and thus weaken gold’s price. We also note that the drop of US yields in the past week may have been a factor allowing gold’s price to rise.

Yet as the week began, US yields have started to rise once again and should we see them rising further, US bonds may become a more attractive alternative to gold for investors. Another factor which could affect gold’s price on a fundamental level, would be central bank gold buying, especially from the People’s Bank of China. Should central banks resume their gold buying we may see gold’s price gaining further ground. 

US Financial releases

Despite a possible dominance of fundamentals and the Fed’s monetary policy stance for Gold’s price until our next week, there are still a few US financial releases, which could affect gold’s price. Besides today’s release of the US retail sales and industrial output growth rates for May, we note that on Thursday we are to get a number of data which may increase volatility also for gold’s price.

We make a start with the release of June’s Philly Fed Business index which is expected to rise and if actually so could weigh somewhat on gold’s price. Also, we note the weekly initial jobless claims figure and a drop is expected after last week’s substantial rise which could weigh somewhat on gold’s price as well, yet a possible additional rise could imply a slack in the US employment market and thus could provide some support for gold’s price.

기술적 분석

XAUUSD Daily Chart

• Support: 2290 (S1), 2220 (S2), 2145 (S3)
• Resistance: 2355 (R1), 2430 (R2), 2500 (R3)

On a technical level, we note, that gold’s price maintained a sideways motion between 2290 (S1) support line and the 2355 (R1) resistance level, over the past week.

Given also that the RSI indicator remains near the reading of 50 implying a rather indecisive market, we tend to maintain our bias for the sideways motion to continue. Yet in the bigger picture, gold’s price action did not escape the boundaries of the downward channel guiding it since the 20  of May.

Hence bearish tendencies for the precious metal’s price may still be present. Yet for a bearish outlook we would require gold’s price to break the 2290 (S1) support line and start aiming for the 2220 (S2) support base.

On the other hand, we note that the 100 and 200 moving averages maintain an upward slope, yet that may be a result of a delay in their reaction to the interruption of the prior upward movement, as implied by the drop of the 20 moving average which is also the median of the Bollinger bands.

Should the bulls take over we may see gold’s price breaking the upper boundary of the prementioned downward channel, in a first signal of an interruption of the downward motion and continue higher to break the 2355 (R1) resistance line, with the next possible target for the bulls being the 2430 (R2) resistance hurdle.

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