Forex Trading Library

Gold Weekly Outlook – Flat price action between $1350 – $1300

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Price of spot gold remains flat this week, as of Wednesday, 20th July. With lack of any clear fundamentals to go by, gold prices eased below $1350 last week and since then has seen supported above $1327.50 an ounce. The decline in gold prices came about after the June payrolls report from the US. While gold prices closed the day, July 8th on a bullish note, prices started to pullback from the following Monday, July 11th. On the monetary policy front, last week, the Bank of England was in focus with markets bracing for a rate cut from the BoE. However, investors were disappointed as the BoE held back from rate cuts or expanding QE. Gold slipped to $1327.50 following the surprise decision and has been bouncing off this support since then.

Last week, the CFTC’s Commitment of Traders report showed that investor demand for gold fell, for the week ending July 12. The net long positions in gold fell 5.10% to 259k contracts approximately. Despite the minor dip in the positioning, money managers remain bullish on gold, which has so far increased 67% since June, validating the surge in price so far.

Gold Futures Positioning (CoT) – Producers v/s Money managers
Gold Futures Positioning (CoT) – Producers v/s Money managers (Source: Freecotdata.com)

In the near term, gold prices appear to take a backseat for the moment, especially with the US markets turning focus on the earnings season. Fed rate hikes are also back in the picture following a broadly positive economic data from the US. The CME futures Fed funds probability increased to 43% for a December rate hike for 25bps. On the geo-political front, Brexit risks have now started to fade and the brief risk-off sentiment on account of the weekend developments in Turkey was quickly brushed aside.

Gold – Technical Outlook

Gold prices have been stuck in a range, trading within July 14th high of 1347.26 and lows of 1320.31. Resistance is seen at 1350 while support is seen at 1300. The ranging price action within these levels is likely to persist in the near term.

Overall, gold prices remain bullish and a test of support at $1300 could potentially see renewed bullish momentum taking shape. However, the daily chart also shows a potential bullish flag pattern following the consolidation off the highs from 1375. Therefore, if gold prices fail to fall back to $1300 but instead breakout above $1350, we could expect further upside in gold. The daily Stochastics has also moved comfortably off the overbought levels.

XAUUSD ($1331.90) – Technical Outlook
XAUUSD ($1331.90) – Technical Outlook

Alternately, failure to breakout above $1350 could keep gold prices subdued in the near term with a test for $1300 support being more appropriate but at the same time an extended decline to $1250 cannot be ruled out either.

In terms of the fundamentals over the near term, the ECB’s meeting is due on Thursday and the central bank is expected to keep its monetary policy on hold. However, any references to future easing and or including changes to the ECB’s bond purchase criteria could keep gold prices supported. The FOMC meeting is up on July 27/28, followed by the Bank of Japan’s meeting on July 29th.

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