Bullish gold trend still intact and poised for potential continuation
James Chen, CMT September 13, 2017 9:38 PM
On Wednesday, as the US dollar extended this week’s rebound from last week’s long-term lows against a basket of other major currencies, gold prices continued to pull back within the sharp uptrend that has been in place for the past two months. US inflation data on Wednesday morning, in the form of the Producer Price Index, helped give a further boost to the dollar, resulting in continued pressure on dollar-denominated gold. Although the PPI reading for August fell short of expectations at a 0.2% rise against a prior consensus forecast of 0.3%, the increase represented a significant rebound from July’s -0.1% decline in producer prices. Looking ahead to Thursday, the US Consumer Price Index for August will be released, with a consensus forecast of +0.3% (and core CPI, excluding food and energy, expected at +0.2%), following July’s lower-than-expected +0.1% rise.
As the US dollar has rebounded strongly from its lows for the first half of this week, the question remains as to how much further the greenback may correct its previously oversold conditions before resuming its well-entrenched downtrend against other major currencies. As long as serious doubts remain over the trajectory of Federal Reserve rate hikes, in contrast with other major central banks that are seen as leaning increasingly towards monetary policy tightening, the US dollar could continue to be pressured and gold could be further boosted.
As it stands, the gold pullback this week that has been driven both by the dollar rebound and lower safe-haven demand as risk aversion has declined and equity markets rallied, is currently still a relatively minor pullback within the strong bullish trend from early July. Late last week, the price of gold reached just above the key $1350 resistance level, a high not seen since August of last year. This week, price has pulled back less than 3% from that high thus far. If gold stays supported above the critical $1300 support level, a rebound and subsequent resumption of the bullish trend is likely, particularly if pressure on the dollar driven by the Fed or economic data resumes and/or market risk aversion returns. On a short-term basis, the clearest upside target on such a rebound remains at the key $1350 resistance level, with any further rise targeting $1375-area resistance.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.