Monday, 18 September 2017 11:14 WIB | GOLD CORNER |Gold OutlookGold Corner
Gold prices might see some more consolidation this week as the metal™s safe-haven allure continues to lose traction, according to analysts. But, the Federal Reserve meeting could offer surprising support to the yellow metal.
Even bullish gold analysts are admitting that the precious metal could retreat a bit further this week, especially after commodity markets chose to ignore another North Korean missile strike and a London terrorist attack on Friday.
œI am generally confident in gold, but I feel the metal is due for a bit of a correction this week, Jasper Lawler, head of research at London Capital Group, told Kitco News.
Lawler noted that the safe-haven status gold offers has been temporarily removed. œWhen we reached the $1,350 level, it created nervousness. On Friday, we had a new missile launch from North Korea, yet gold was not able to capitalize on that, nor did other safe-haven currencies.
Yet, geopolitical issues will not be disappearing into the background this week either, said Simona Gambarini, an analyst at Capital Economics.
œWhat happened in London on Friday and North Korea™s missile test ” there will probably be a focus on geopolitical risks this week, which could trigger another rally in prices should the situation deteriorate or risks be perceived to have increased, Gambarini noted.
Ryan McKay, commodity strategist at TD Securities, also highlighted that there is a œbuild up in speculative positions and gold could be heading a bit lower.
˜It™s All About The Fed This Week™
The Fed meeting on Tuesday and Wednesday is the number one event to watch this week, according to analysts.
œIt is all about the Fed this week, Lawler said. œIf anything, it is going to be okay for gold. Judging on the language from New York Fed President William Dudley, who didn™t seem to be in any rush for the next rate hike, we might be done with rate hikes this year and that could be bearish for the U.S. dollar.
Other analysts unanimously agreed that a rate hike this week seems to be out of the realm of possibility. So, all eyes are now on how the Fed might handle its widely expected balance sheet reduction announcement.
œThe Fed meeting will be important and certainly investor focus will return to the central bank from geopolitics, Gambarini said. œThe Fed is unlikely to hike interest rates again this year due to inflation remaining on track and heightened geopolitical risks.
What could really rock the boat is if the Fed begins selling the bonds this year, for example in December, noted Lawler. œThat move could create nervousness, and that could be a stock market negative and a gold positive.
Since the Fed™s efforts to reduce its balance sheet are unprecedented, analysts are left scrambling when trying to forecast market™s reaction to the central bank™s potential statement.
œDifficult to know how it will impact gold because it is unprecedented territory. We do expect an announcement and it is possible that the Fed will start to downsize their balance immediately, Gambarini pointed out. œIn theory, it should be negative for gold prices, but it will depend on the amount they plan to reduce. Our assumption is that it will be very gradual, so the initial impact is likely to be relatively limited since the markets likely priced that in already.
œThe Fed is expected to leave interest rate unchanged and announce its decision on when, how, and why to shrink the balance sheet. We™ll have to wait to see how gold reacts, said Robin Bhar, head of metals Research at SociÃ©tÃ© GÃ©nÃ©rale.
Other key U.S. data to watch next week includes a number of residential reports, such as Building Permits, Housing Starts, Existing Home Sales, and House Price Index. A couple of additional ones to keep an eye on are Current Account, Philadelphia Fed Manufacturing Index, and Manufacturing PMI.
Levels To Watch: $1,300 To Hold
Despite fears of profit taking in gold, the precious metal will hold above $1,300, Lawler said. œImmediate support level is $1,316 and resistance is at $1,350. If we close above $1,350 that would be a sign of good things to come.
Colin Cieszynski, chief market strategist at CMC Markets, expressed a similar view, noting that œ$1,300 is not only a round number, but also got Fibonacci support.
He added that œgold came down quickly, which eased overbought conditions, but upward momentum is still slowing at this point.
McKay is looking at $1,307 support and $1,350-$1,375 resistance. œIt will be tough to break above $1,375 unless we have the Fed come out and say that they are not going to be as hawkish, pointing to two hikes instead of four.