Gold Surges after U.S. Home Sales Disappoint

After consolidating for several days, December Gold broke out to the upside, triggering a sharp rally that has the market poised to challenge the psychological $1400.00 price level.

Weaker-than-estimated sales of U.S. homes created more uncertainty about whether the Fed will begin reducing monetary stimulus as early as September. Gold tends to rally when uncertainty hits the market as investors use it to park their money until they get some clarity.

Early in the session, the U.S. announced that new home sales fell 13.4% to a seasonally adjusted, annualized rate of 394,000 in July. This was the lowest figure since October. Traders were looking for around 485,000. The government also revised the June rate to 455,000 from 497,000.

When the news came out, the dollar broke, fueling a spike in gold prices. Taking out $1400.00 late in the session with conviction could set up a test of the early June top at $1426.00 next week. New support is the Fibonacci price level at $1372.88.

A combination of technical and fundamental factors helped October crude oil prices surge on Friday. Technically, the market found support after completing a correction into a short-term retracement zone at $104.87 to $104.13.

Fundamentally, it may have been the bullish news regarding China’s manufacturing sector on Thursday which set the tone for today’s almost $2.00 rise, but today’s spike higher was actually triggered by a drop in the dollar. The Greenback fell after the U.S. reported poor new homes sales figures. This weak report encouraged investors to sell the dollar on the thought the Fed would refrain from making any changes to its monthly $85 billion bond purchases in September.

The strong upside momentum has the market in a position to challenge the recent tops at $107.85 and $107.95. Although a weaker dollar may take crude oil to these levels, it is probably going to take speculative buying fueled by worries of supply issues in Egypt to put this market over the top.

The EUR/USD rallied after the U.S. reported weaker-than-expected home sales and revised downward a previous report. The news raised doubts as to whether the economy is strong enough for the Fed to begin reducing its monetary stimulus.

The main trend is up on the daily chart, however, today’s buying stopped shortly after reaching a retracement zone at 1.3374 to 1.3392.

The GBP/USD fell on Friday despite the release of better than expected U.K. Second Estimate GDP. This report showed the economy had hit a three month high. Preliminary Business Investment also beat the latest estimate. The drop in the Sterling suggests investors had already priced the strength of the reports into the market. Oversold technical factors most likely encouraged investors to take profits at current price levels.

A drive to 1.5717 earlier in the week fell short of the June top at 1.5750. The chart pattern suggests the market is likely to pullback to at least 1.5570 to 1.5535 before buyers start to show interest.