Top Story

Gold’s stay above $1300 could be short-lived

Thanks to increased uncertainty about the US elections and a drop in the dollar, buck-denominated gold has been surging higher in recent days to reach north of $1300 today. The stock market sell-off has further supported the perceived safe-haven precious metal. However the stay above $1300 could be short-lived as I believe the dollar could make a comeback soon – if not this week then probably the week after.

Will the Fed prepare the market for a December lift off?

With US presidential election being just five days away, the Federal Reserve will almost certainly want to keep a low profile at the conclusion of the FOMC’s two-day meeting later on. Virtually no one is expecting to see a rate rise and there won’t be a press conference from Fed’s Chair Janet Yellen either. Instead, the focus will be on the wording of the policy statement and investors will be looking for clues about the prospects of a December rate hike. Up until the end of last week, the market appeared almost certain that a rate rise in December was inevitable. However, that changed as the FBI probe into Hillary Clinton’s emails increased uncertainty about the outcome of the elections. Those who were long the US dollar and equities saw this as an opportunity to take profit on their positions, especially considering the high-impact fundamental events of this week: the FOMC rate decision and US non-farm jobs report, among others. As the dollar and stocks went down, up went dollar-denominated and perceived safe-haven gold and silver.  

Dollar selling justified in short-term

But is the dollar selling justified? I think to some degree, yes. No one can be certain about the outcome of the US elections and then the Fed’s possible response. Also, what if US data from now until the Fed’s December meeting turn really negative? Surely if that were to happen, the Fed may well hold off raising rates until again next year. Also, when paired against other currencies, the dollar’s short-term weakness makes more sense. For example, the fact that the Reserve Bank of Australia was deemed a lot less dovish this week has supported the AUD/USD, while the NZD/USD has been underpinned by strong employment figures in New Zealand and a rebound in dairy prices. What’s more, the overreaction in the GBP selling due to the impact of Brexit has supported the GBP/USD in recent days, while the USD/JPY has been undermined by safe-haven flows into the yen. So, when you look at the dollar in that sense then you can understand why it has been sold.

Dollar could make a dramatic return

However, the underlying fundamental strength of the dollar means any short-term weakness will likely be faded into by large institutional investors and hedge funds, those responsible for basically moving the markets. After all, the Fed remains the only major central bank looking to increase rates while the rest are still pretty much dovish across the board and will likely remain that way for the foreseeable future, especially in the case of the Bank of England and the Bank of Japan. Thus, in my view, the dollar could go higher, much higher, over the long term outlook.

Gold’s advance could get rejected at this $1300 critical juncture

The $1300/08 area for gold represents a major technical resistance zone. Previously, dips were bought here; now rips could be sold here. Time will tell. The 50-day moving average, which is now pointing lower, also comes into play in this area, as does the 61.8% Fibonacci retracement level against the most recent high. There is a potential therefore for the sellers to return here and push gold back down towards the previous support at $1277 and potentially beyond. On the other hand, if the sellers do not show up here in a meaningful way then a continuation towards $1321 could be the outcome: here the 78.6% Fibonacci level converges with the bearish trend line. 

Source: eSignal and

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 or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.