Gold prices managed to post a rally the week during the FOMC meeting. With the central bank holding rates steady, gold prices eased back forming nearly three days of closing flat. The double inside bar pattern on the daily chart saw prices breaking out strongly yesterday indicating near-term declines. Support is seen at 1314 – 1300 on the daily time frame and a breakdown of prices here could mean further declines.
The safe haven precious metal has enjoyed a strong rally this year, benefiting from low-interest rates and dovish central bank policies. According to Mining.com, this year has been one of the most successful years for gold in over 3 and a half decades with prices gaining nearly 26%. However, the recent price action has stalled with gold trading flat since July.
This week so far failed to offer any catalyst for gold. Whatever near term risks came out from the US presidential debate on Monday saw the risks recede as the markets gave thumbs up to presidential candidate Clinton rather than the wildcard and uncertain policies of Trump.
Still, with two more presidential debates to go, there is a lot of room for gold prices to rise as well as for the voter sentiment to shift.
Vyanne Lai, an analyst from NAB, says, “If Trump is perceived to have an improved probability of winning the presidential race that is likely to be supportive of the gold prices, so we could see [gold] prices rallying in the short term amid higher volatility.”
Looking ahead to the market events for the remainder of this week, gold prices will come under renewed pressure as Fed Chair; Janet Yellen testifies today. It is likely that the head of the Federal Reserve will maintain a hawkish tone indicating that rates are very likely to rise by the turn of the year. Ms. Yellen will be testifying for two days, on Wednesday and Thursday (September 28 and 29). Other Fed members that will be speaking include FOMC member Bullard.
On the economic front, the markets will be looking at today’s durable goods orders release, which is expected to show a 1.50% decline on the headline print and 0.50% decline on the core. On Thursday, US final GDP figures for the second quarter is forecast to be revised from 1.10% to 1.30%. Although the data could offer some short-term volatility for gold, the main focus will be next week’s economic data. A busy week will see the data for the month of September which includes the ISM manufacturing and non-manufacturing PMI as well as the monthly jobs numbers.
Gold consolidating in a descending triangle
Following the rally from December last year, gold prices have formed a strong support near the 1314 – 1315 handle with multiple declines to this support resulting in a strong bounce back. However, the pace of the bounce from this support has somewhat weakened with gold prices briefly falling below the 1314 support. The resulting price action has consistently formed lower highs leading to a descending triangle pattern.
More recently, the double inside bar that was formed which saw prices breaking out strongly yesterday to close at 1327.00 could see another leg of declines back to 1314 support.
While it is unlikely to expect further declines unless support by some fundamental development, watch the support level which could possibly give way for gold prices to drop to 1300, a strong psychological level that hasn’t been tested since the June 24 Brexit led gains.
A breakdown below 1300 could potentially see further declines pushing gold to as low as 1250. To the upside, as an alternate scenario, watch for the break of the falling trend line, which could signal further upside towards resistance level of 1360 – 1350.