GOLD (XAUUSD) Fundamentals (based on dailyfx article)
Gold prices are virtually unchanged on the week with prices off by a
mere 0.1% to trade at $1291 ahead of the New York close on Friday.
Prices have continued trade within a tight range despite ongoing
strength in the US dollar and broader equity markets. Nevertheless,
gold remains at a critical juncture and the technical picture continues
to suggest that a break of a multi-week consolidation pattern is
imminent as we head into the close of May trade.
In light of the recent strong demand for US Treasuries, it’s
disconcerting that although gold has largely moved in tandem Treasuries
since the start of the year, it has been unable to participate in the
bond rally since April. This condition suggests that the gold market
remains vulnerable in the near-term and with the long bond coming off
key near-term resistance at the 61.8% retracement from the decline off
the 2012 record highs, further weakness in Treasuries could put added
downside pressure on gold prices.
Looking ahead, the preliminary 1Q GDP print highlights the biggest
event risk for the week ahead with consensus estimates calling for a
downward revision to reflect an annual contraction of 0.5% q/q. With
that said, a dismal growth read may dampen the appeal of the US Dollar
and spur increased demand for gold as interest expectations get pushed
out. Watch for developments in the bond market and the greenback for
guidance with the recent price action in gold warning of a decisive
move heading into the monthly close.
From a technical standpoint, our outlook remains unchanged from last
week. “Gold has continued to trade into the apex of a multi-week
consolidation pattern off the April highs and a break-out ahead
of the May close is in focus. A break below 1260/70 is needed to put
the broader bearish trend back into play targeting $1216/24 and the
2013 lows at $1178. Interim resistance and our near-term bearish
invalidation level stands at $1307/10 with a move surpassing $1327/34
shifting our broader focus back to the long-side of gold. Bottom line:
look for a decisive break of this pattern next week with a move
surpassing the May opening range to offer further clarity on our
medium-term directional bias. The broader outlook remains weighted to
the downside sub $1334.
The silver markets fell during the course of the week, testing the
absolute lows that the market has had recently. With that being the
case, silver really looks weak here, and as a result we don’t really
feel comfortable buying it at this point in time. If we got a supportive
candle down there, we can’t think of a better place to do so, but we
just don’t have it so therefore we are more than comfortable just
sitting on the sidelines as this market looks far too dangerous to be on
the long side of. However, fresh new lows could lead to a nice selling
opportunity for a move down to about $15.