Gold at 4-Month Lows- November Close in Focus Amid Thin Holiday Trade
Fundamental Forecast for Gold: Neutral
Gold plummeted more than 3.5% this week with the precious metal trading at $1244 ahead of the New York close on Friday. The decline marks the largest weekly loss in two months and comes on the heels of the FOMC minutes from the October 30th meeting where the committee showed a willingness to begin tapering in the “coming months” if US economic data continued to improve. The remarks saw taper expectations moved back up with investors now looking to December as a viable timeframe. Strength in the greenback further exacerbated the move with the Dow Jones FXCM Dollar Index (Ticker: USDDOLLAR) closing the week just off 2-month highs. But with the November close and a shortened week ahead, can the sell-off be sustained?
The economic docket will be rather limited amid a shorted week ahead of the Thanksgiving holiday with only a hand full of housing data and November consumer confidence on tap. As such, price action is unlikely to inspire much confidence as volume thins out heading into the holiday and we will look to broader market sentiment and the greenback for guidance. The focus remains on Fed policy and whether the recent batch of stronger than expected data out of the US is enough to warrant action from the central bank to begin its exit strategy in December. Also note that it is a shortened holiday week and thin liquidity conditions / end of month flows could lead to some choppy price conditions. Near-term traders should remain prudent heading into the November close with the December opening range likely to offer further conviction on our broader directional bias.
From a technical standpoint, gold invalidated last week’s bullish outlook early in the week with the break & subsequent close below $1268 and while the technical damage now keeps our broader bias weighted to the downside, we will remain neutral into the close of the month. Bearish invalidation has now been brought down to $1294 with only a break above shifting our focus higher. Short-side support targets are eyed at $1233/34, $1209 and $1179/81. Note that daily RSI has made a slight rebound off the 30-thresholds and risks a near-term relief rally early next week. We will continue to sell into rallies and a break below $1233 with RSI conviction puts subsequent support targets into focus. Interim resistance stands at $1250 backed by $1268 and $1294. Note that the November opening range made a clear break early in the month and we should expect prices to close the month not too far off these lows. - MB