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James Hyerczyk
Comex Gold

Gold futures finished higher last week, but remained inside its eight week range. Nonetheless, the market finished slightly below the mid-point of this range, suggesting a developing upside bias.

The main trend is up according to the weekly chart, but the rally stalled at $1566.20, the week-ending September 6. However, the selling also stopped at $1465.00, the week-ending October 4, leading to the sideways price action.

The range is $1566.20 to $1465.00. Its 50% level or mid-point is $1515.50. Trader reaction to this price will determine the near-term direction of the market. This price level has been tested four out of the last five weeks. Each time, it has proved to be resistance.

Given the current chart pattern, it looks as if traders are waiting for a major news event to drive the price action.

Last week, the direction of the December Comex gold market was fueled by the Federal Reserve announcements, U.S. economic data and positive trade talk developments.

Last week, December  Comex gold finished at $1511.40, up $6.10 or +0.41%.

U.S. Federal Reserve

On Wednesday, the Federal Open Market Committee voted to cut its benchmark interest rate 25-basis points. The move was anticipated for weeks. The Fed also removed a key phrase from its statement that said it will “act as appropriate” to sustain the current expansion. Investors read this to mean policymakers were ready to take a break from their current rate-cutting policy, which likely means it will pause in December.

Federal Reserve Chairman Jerome Powell said in a press conference following the decision that the central bank would need to see a “really significant” rise in inflation before the Fed thought about hiking. With inflation running about 1.4%, or below the Fed’s 2.0% target, it looks like it will be a long time before the central bank even considers a rate hike.


US Economic Data

The Dollar/Yen recovered slightly on Friday as investor sentiment got a lift from much stronger-than-expected U.S. Jobs data. The U.S. economy added 128,000 jobs in October, the Labor Department said. Economists were looking for a gain of 75,000 jobs for the previous month. Job growth data for September and August was also revised substantially higher. Average hourly earnings rose and the unemployment rate inched higher as expected.

Other data released Friday included the Institute for Supply Management’s reading on October U.S. manufacturing. The ISM’s manufacturing PMI came in at 48.3, representing a bigger-than-expected contraction in the sector.

U.S. – China Trade Relations

China said Friday it reached a consensus in principle with the U.S. during trade talks this week. The U.S. Trade Representative’s office also said Robert Lighthizer and Treasury Secretary Steven Mnuchin made “progress in a variety of areas and are in the process of resolving outstanding issues.”

Weekly Forecast

Based on last week’s close at $1511.40, the direction of the December Comex gold market this week is likely to be determined by trader reaction to the pivot at $1515.60. A sustained move over this level will indicate the presence of buyers. A sustained move under this level will mean that sellers have the upper hand.

There is only one major U.S. economic report this week. On Tuesday, the U.S. will release a report ISM Non-Manufacturing PMI.

The rest of the week, traders are likely to be focused on Treasury yields, the stock market and the U.S. Dollar. The catalyst is likely to be the announcement of a partial trade deal between the United States and China.

On paper, a trade deal announcement should be bearish. However, it all depends on the details of the pact. If analysts think the agreement is weak then gold could rally. A strong deal is likely to limit gains and could drive prices lower.

Investors will also be watching the U.S. Dollar. A trade deal could drive investors out of the U.S. Dollar because it will lose its appeal as a safe-haven asset. A weak dollar tends to make dollar-denominated gold a more attractive investment.

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