Gold prices seen regaining $1300. FOMC, US elections in sight

Gold prices lost close to 3% last month (October) after price failed to push higher above the $1350 handle. On a year to date basis, gold futures are still higher with 21.48% increase on a year to date basis. The recent gains since a week ago came about after the US dollar index hit a well-known resistance level near 99.00 – 100.00. With the dollar index retreating off this resistance, gold prices managed to post a smooth rebound after the gold price fell to a 4-month low to $1241 an ounce.

In the immediate short term time frame, major catalysts include the Fed’s FOMC statement which is due today followed by the US general elections due next week on November 7 – 8.

Traders await Fed’s statement today

The US Federal Reserve will be concluding its two-day meeting today with the release of the FOMC statement. Economists widely believe that the Fed will hold pat on monetary policy at this week’s meeting, but the statement could provide clues on the prospects of a December rate hike.

Recent economic data from the US supports the case for a rate hike in December. Many FOMC voting members have publicly voiced their support for seeing at least one rate hike by the end of 2016. While the current rate hike cycle has been slow, despite the tightening in rates many view the Fed’s stance as being dovish. This was widely evident in the September FOMC meeting where the case for a rate hike was a close call which saw three dissenting votes in favor of a 25bps rate hike.

Despite the short-term dip in the ISM manufacturing gauge, the sector has managed to rebound. Inflation remains broadly stable and latest GDP figures for the third quarter saw the US economy surge ahead, rising 2.9% and beating estimates by a fair margin.

The second non-farm payrolls report will be coming out later this week on Friday and with the benchmark for ‘disappointment’ being fairly low, the Fed’s language in today’s FOMC statement will likely embolden views for a December hike.

US election uncertainty looms

With just under a week to go for the 58th US presidential elections, the race has been squarely between Hillary Clinton and Donald Trump. Despite a rather weak performance in the presidential debates, the news about the FBI re-opening the investigation in Ms. Clinton’s email case has reinvigorated the odds for a Trump victory. Still, many view next week’s elections results to be an uncertain outcome which could keep gold prices supported in the interim.

Earlier this week, analysts at HSBC noted that gold could emerge the winner from the US elections. The bank’s Chief PM analyst, James Steel expects “at least a 8 percent jump whoever wins the race.” Steel adds that gold could push even higher, rising to $1500 an ounce if Trump wins the elections next week.

Another analyst James Butterfill from ETF Securities supports the view. He says, “Gold is seen as a hedge against political uncertainty, and President Trump would bring more political unpredictability than any president for generations, particularly over the U.S. Federal Reserve’s leadership and monetary policy strategy.”

Gold – Technical Outlook

In the gold commentary a few weeks ago, the bullish outlook was expected after gold fell to $1250 support confirming the descending triangle pattern and following the break down below the $1300 support level. The bullish close on the weekly session for the week ending October 21 confirmed the retracement with gold now into its third week of gains while approaching the key resistance level at $1300. Despite the current strength in gold prices, the gains are limited unless the resistance level, which is seen near the price zone of $1300 – $1315 gives way.

In the event of a reversal near the resistance level, which also marks a retest of the breakout level from the rising price channel, gold prices could very well resume its declines, this time potentially targeting $1200.