Gold – Bullishness Grows as Fed Hike Priced Out

Gold may be experiencing some consolidation today on the back of some mixed data from the US – better inflation and jobless claims figures but worse manufacturing surveys from Empire State and Philly Fed – but following yesterday’s break to new three month highs, there could be further gains to come.

Last week, Gold broke through the descending trend line – 22 January highs – and got confirmation of the break a couple of days later in a sign that we could see an assault on the 24 August high.

Gold Daily

The rally following the trend line break was quite strong and the break of the new resistance soon followed, helped by weaker US retail sales data that reduced the odds further of a rate hike this year (Fed Funds futures now pricing in 26.8% chance of rate hike this year, down from 32.6% yesterday).

Inflation and interest rate expectations are important drivers of Gold prices and the prospect of the Fed hiking interest rates has been key behind its ongoing decline. It’s not surprising then that as markets increasingly price out a rate hike this year, Gold finds higher bids.

Gold is currently finding resistance around $1,190 but I think we could see further gains in the coming weeks, especially if US data continues to disappoint. The next notable level of resistance is around $1,205, having been so back in June when Gold last traded around these levels.

If we see a break above here, Gold could run into significant resistance around $1,232.50. Here the descending trend line – 9 May 2013 highs – intersects the highs from 17 May.

Gold 4hr

It should be noted that we are seeing divergence on the 4-hour chart with prices making higher highs and the stochastic making lower highs. While this in itself doesn’t mean a reversal will follow, it does suggest it is losing momentum so it’s worth monitoring price for further evidence of this.

Given that the current daily candle is a long-legged doji, indicating indecision, this could be an early sign that the case for a correction is building. I would still like more confirmation from price though.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.