Gold May Have Breakout Due to Weak Dollar

While gold futures did finish up last week, the 8-week range still held. However, price closed just below the midpoint of the range, foreshadowing bias toward the positive side.

The weekly chart shows the market in an uptrend, but the move upward stalled around $1566.20 during the week that ended September 6th. But the market has clearly been in a range since October 4th when the sellers were stopped at $1465.00.

From these two extremes, we have the range whose midpoint is $1515.50. This price level has been tested four out of the last five weeks and it has held as resistance each time.

Last week, the price of December Comex Gold was driven by Fed announcements. The current chart pattern suggests that traders are waiting for some guidance this week as well. $1511.40 was the close last week.

U.S. FOMC Meeting

Last Wednesday, the Fed decided to hike the interest rate by 25 basis points. This move had been expected for several weeks. More significant was the Fed’s removal of the phrase “act as appropriate” from their statement, suggesting that it will not act in December to stimulate growth. Fed chairman Powell said that a “really significant” inflation increase would need to be seen before the Fed would act. Inflation is currently running at about 0.6%, well below the Fed’s target of 2.0%.

U.S. Economic Data

On Friday, the released U.S. jobs data turned out to be much better than expected, allowing the USDJPY pair to recover somewhat. 128,000 jobs were created in the U.S. economy in October, with the consensus analyst expectation being 75,000. Job data for September and August was also revised upward. The unemployment rate increased slightly but the average hourly earnings gained as well. The Institute for Supply Management released the October U.S. Manufacturing PMI, which was 48.3. This was lower than expected.

U.S. Trade Negotiations with China

On Friday, China said that it had come to agree in principle with the U.S. during trade negotiations this week. This fact was seconded by the U.S. Trade Representative’s office.

Weekly Outlook

The December Comex market will be determined by what happens at $1515.40. A strong, concerted move above this point will show the buyers are in charge. A significant move below will signal that sellers have the advantage.

On Tuesday, ISM Non-Manufacturing PMI is the only U.S. economic report of the week. In the absence of other news, traders are likely to pay attention to U.S. treasuries, the stock market and the U.S. dollar. If some kind of trade deal, partial or otherwise, is announced, it could prove to be a spark for price movement.

In theory, a trade deal should move gold prices to the downside. But if the agreement is seen as suspect, traders may respond by shooting gold upward. The U.S. dollar will also be on investors’ radar this week as a trade deal could drive investors out of the U.S. dollar and into gold. A weak dollar is generally seen as less attractive than dollar-denominated gold as a safe haven.
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