Gold is trading steady to lower early Friday on relatively low volume. The fundamentals are bearish, but technically oversold conditions may be helping to
Gold is trading steady to lower early Friday on relatively low volume. The fundamentals are bearish, but technically oversold conditions may be helping to limit losses. Gold is currently trading at its lowest level since August 17. This is just one trading session after the market hit a multiyear low at $1167.10 on August 16.
At 0827 GMT, December Comex Gold is trading $1187.20, down $0.20 or -0.02%.
Gold was driven to a six week low earlier today by a firmer U.S. Dollar. The dollar is being underpinned by expectations of higher interest rates, a weaker Euro and solid U.S. economic data.
On Wednesday, the U.S. Federal Reserve raised its benchmark interest rate 25-basis points. It also presented a bullish outlook for the economy while indicating another rate hike in December and probably three more in 2019.
The Euro is being pressured by political issues in Italy. This is helping to increase the U.S. Dollar’s appeal as a safe-haven asset.
On Thursday, the dollar was also supported by data which showed U.S. economic growth accelerated in the second quarter at its fastest pace in nearly four years. Another report showed durable goods rose 4.5 percent in August, rebounding from a revised 1.2 percent drop the month before.
Not only are the fundamentals bearish, but the technical chart pattern shows that gold is currently on the weak-side of its six-week trading range. Furthermore, hedge fund and money managers are net short and don’t seem likely to give up this position over the near-term.
Furthermore, not only are rising interest rates supporting the dollar and pressuring dollar-denominated gold, but the dollar has also become a safe haven asset during the current trade dispute with China. This could only increase the pressure on gold prices if the trade dispute continues to escalate.
Later today, gold prices could be influenced by a number of U.S. economic reports including the Core PCE Price Index, Personal Spending, and Personal Income. Other reports include Chicago PMI and University of Michigan Consumer Sentiment.
The most important report that could move the gold market is the Core PCE Index. This measure of inflation is preferred by the Fed. It is expected to show an increase of 0.1%, which should put it slightly above the Fed’s 2.0% mandate.
Secondly, the Fed wants to continue to see personal income rising as well as consumer spending. Income is expected to have risen 0.4% and spending is expected to have increased by 0.3%.
Technically, the chart indicates that a sustained move under $1187.50 could lead to an eventual retest of the August bottom at $1167.10.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.