Summary:
- Gold prices lose over three percent yesterday breaking below the psychological 1300 support
- Richmond Fed, Lacker maintains hawkish views on Fed rate hikes
- Gold validates the technical descending triangle pattern as mentioned last week
- Watch for near-term bounce back to 1310 – 1300 for resistance
- A correction to 1250 cannot be ruled out
- Friday’s payrolls report will be another main event risk for gold prices
Spot Gold fell over 3 percent in yesterday’s session as prices touched a 4-month low at $1268.44 an ounce with the declines seen extending into a second consecutive week. With prices falling to the 1275 – 1265 support level, the question now is whether the declines in gold prices marks a correction to the uptrend or if the declines mark the start of a downtrend.
Fed Lacker’s hawkish commentary
Yesterday, FOMC voting Member and Richmond Fed President, Jeffrey Lacker said that the central bank should hike rates in order to head off a likely pickup in inflation that would later force the Fed towards larger rate hikes. Lacker is a hawk and dissented twice, voting in favor of rate hikes.
Speaking in Charleston, West Virginia, Lacker said: “While inflation pressures may seem a distant and theoretical concern right now, prudent preemptive action can help us avoid the hard-to-predict emergence of a situation that requires more drastic action after the fact.” Lacker said that both employment and inflation goals “look pretty good right now.”
The decline in gold price came as a surprise to some as the ongoing uncertainty surrounding the UK’s decision to invoke Article 50 by March next year, and the issue of Deutsche Bank and Wells Fargo failed to support gold prices.
Gold – Technical Outlook
From the 4-hour chart, the descending triangle pattern was validated following the breakdown of prices near the initial support of 1320 – 1310. This led to a sharp back to back decline within just two 4-hour sessions pushing gold prices to test the measured move target of 1275 – 1265. Currently, gold is looking to stage a reversal near this support, with the obvious question being whether the price will be able to retrace back to challenge the support turned resistance level of 1320 – 1310.
Below the current support sits the main price level of 1250 which was briefly tested only once back in mid-June this year. Therefore, a continuation to the downside could see a test of 1250 support in the near term.
On the daily chart time frame, the 13-period RSI currently points to a hidden bullish divergence, which could indicate a near-term correction in prices. Therefore, we could expect gold to retrace some of the declines with the resistance of 1310 – 1300 quite likely to be tested. As long as prices do not fall to 1250 in the current leg of the declines, a potential reversal near the mentioned resistance level could see renewed momentum to the downside as $1250 support is very likely to be tested by price. The long term trend in gold remains to the upside, but that could change should prices slide below the $1250 handle.
September payrolls, the next catalyst?
A lot more of economic data is expected to be released over the remainder of the week. On Wednesday, the ADP private payrolls numbers are expected to show private sector hiring around 166k, slightly below 177k from August. The ISM’s non-manufacturing PMI is also due today with forecasts of an increase to 53.1 following a 4.1 point drop in August. Earlier this week, the US ISM manufacturing PMI posted a strong rebound, and a continuation of this trend in the services sector could be more bullish for the US dollar. While Thursday is relatively quiet as far as economic data is concerned, Friday’s payrolls report will be the most important event this week that could potentially hammer gold prices even lower should the headline print beat estimates.
The expectations are bullish with median forecasts pointing to a 171k print for September with the headline figures from August very likely to be revised higher and could continue to put pressure on gold prices.
