Gold unconvinced of a rate hike in September

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Gold

After a brief pause on Monday, gold saw renewed bullish momentum as prices surged back to regain the $1350 handle. The gains came after yesterday’s Institute of Supply Management’s non-manufacturing PMI report. Data showed that the services sector activity fell to a 6-year low. It followed last week’s manufacturing PMI which itself fell to more than a three and half year low.

After last Friday’s nonfarm payrolls report failed to beat estimates and the trend showing that August payrolls were nowhere near the previous 200k+ jobs that were created, speculators took advantage of the weak reports sending the US dollar plunging while precious metals gained as a result. While gold prices closed yesterday with over 1.70% gains, since August 31st, gold is up 3.12% after posting a low near 1308.

Despite the short term gains, gold prices remain caught within the range with the resistance at 1360 – 1350 to the upside and support at 1315 – 1300 acting as the floor. Only a clear breakout from this range could see the momentum establish further direction in prices.

The Fed’s next FOMC meeting is due on September 20 – 21 and ahead of the meeting, the Bank of Japan and tomorrow’s ECB meetings remain the key event risk in shaping the near term sentiment in gold.

Gold Technical outlook: Range bound

The daily chart below for gold shows prices clearly moving sideways since late June with price bouncing off the mentioned support and resistance levels. As noted in last week’s report, the hidden bullish divergence has managed to see prices reverse from near the 1300 – 1315 support level. In the near term, the range is likely to continue with the long term trend line connecting the lows of 1051 from December 2015 and 1206 from May this year remains intact. A break out from this rising trend line could signal the declines in gold prices. Below 1300, the next main support is seen near the 1250 levels. To the upside, 1365 – 1350 resistance must be cleared in order to expect further gains in gold, in which case $1400 an ounce doesn’t seem too farfetched.

Gold trades sideways within 1365 – 1300
Gold trades sideways within 1365 – 1300

Although the price action shows that the Fed rate hike in September is unlikely, a surprise could however send gold prices falling sharply. With the momentum seen building up within the flat price range, this could catch many a weak long positions off guard. Between now and September 21st, there aren’t that many economic releases that could further shape the market sentiment.

US retail sales and consumer price index are the only two notable releases that could see some more positioning into gold prices. As far as Fed speak is concerned, with the exception of Eric Rosengren who is due to speak today, there aren’t that many speeches scheduled, leaving investors to continue guessing on the Fed’s move in September.

This translates to gold prices likely to continue moving within the range that has been established into the FOMC event.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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