Fundamental Forecast for Gold: Bullish
Gold prices surged this week with the precious metal up nearly 2.7% to trade at 1348 ahead of the New York close on Friday. The losses come amid continued weakness in broader risk assets with all three U.S. Major Indices down more than 4% on the week. For gold, the advance has taken prices through the monthly opening-range highs and keeps the focus higher heading into the monthly close.
The Federal Reserve raised interest rates this week by 25bps as expected with the updated economic projections highlighting and upward revision to both growth and employment for 2018. Still, the interest rate dot plot continued to suggest that the committee remains on course for three hikes this year as inflation expectations remain firmly anchored at 1.9%.
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For gold, the prospect of a more gradual normalization path from the central bank alleviated the recent downward pressure with mounting concerns over the potential for a global trade war stoking demand for the perceived safety of the yellow metal. From a technical standpoint, Gold has stretched into fresh monthly highs with the advance keeping the near-term focus higher heading into next week.
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- A summary of IG Client Sentimentshows traders are net-long Gold – the ratio stands at +2.09 (67.7% of traders are long)- bearish reading
- Long positions are 0.2% higher than yesterday and 15.2% lower from last week
- Short positions are 0.6% higher than yesterday and 19.6% higher from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Spot Gold price trend may soon reverse higher despite the fact traders remain net-long.
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A breach above the objective monthly opening-range highs alongside an RSI resistance-trigger break keeps the focus higher in gold heading into the March close. Prices are now poised to post an outside weekly reversal candle off support (bullish). Note that daily momentum has been unable to break below 40 since the yearly high and keeps the momentum profile in a bullish posture for now- look for a weekly close above 60 to confirm.
The rally is attempting to break through the 2018 high-day close at 1348– just higher rests basic channel resistance extending off the yearly high around ~1356. A breach above this threshold is needed to mark resumption with such a scenario targeting the 2016 high close / 2018 high at 1366 backed by a key Fibonacci confluence at 1378/79.
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Gold 120min Price Chart
Earlier this month I noted that, “IF prices are heading higher, support into this level should hold (. A breach above the median-line shifts the focus back towards the 1339 target and the upper parallel / 2017 high-day close at 1346.” A closer look at gold sees prices breaking above basic slope resistance extending off the February high with the advance taking out both targets on this stretch. Interim resistance stands with the upper parallel at ~1356. Interim support now 1339 with broader bullish invalidation now raised to the yearly low-day close at 1317.
Bottom line: Look for a high early next week to give way to a near-term set-back in price. Ultimately we’ll be tracking for more favorable long-entries while above 1317 targeting a breach of this channel.
—Written by Michael Boutros, Currency Strategist with DailyFX