Gold’s rally has surprised many over the past fortnight. However, the precious metal may have moved too high and too fast. After almost reaching $1790.00 last week, Gold started to pull back amid hawkish comments from Federal Reserve officials. A drop below $1750.00 could likely end the rally and open the door for another decline.
Gold prices rose from $1614.69 in September and stuck around $1729.44 before dropping to form a triple bottom pattern in late October and early November. Since early November, Gold has manoeuvered and continued to rally up to $1786.36 last week. But that rally seems to be running out of steam, at least for now.
Gold traders need to pay attention to the movement of the USDIndex which is currently stuck at the 200-day exponential moving average. Besides, gold price movements will also depend on how US Treasury yields trade next week.
The Fed reinforced the idea that they will remain hawkish. Although we may see a 50 bp hike in December, according to Fed speakers 75 bp is still on the table. If the Fed gives another surprise, without policy cooling, then the door for Gold to decline will be wide open.
Comments from Fed members next week will be of interest, as it is likely that their verbal interventions will influence market perception of their December policy.
This week will be a shorter week, with US Thanksgiving falling on Thursday. Fed minutes from the October meeting and more Fed speakers are also scheduled for next week. Risk aversion is likely to settle and Gold could drift lower.
Technical Overview
The decline in gold prices from the temporary peak of $1786.36 was arrested at $1747.47 at the end of the week, due to the mild rally in the USDIndex. Gold prices were also pressured, due to higher T-note yields and hawkish comments from Boston Fed President Collins. The price outlook at the start of the week tends to be neutral. A price move below $1747.47 will take the asset to the downside for $1729.44 support first. Meanwhile, a move above $1767.62 could test the recent peak and open up opportunities for a rally to $1800.00.
The intraday bias tends to the downside, with the RSI at 40 and unsaturated, while the MACD signal and histogram, aligned lower near the median line.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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