Fundamental Forecast for Gold: Bullish

Gold prices rebounded for a second consecutive week with the precious metal surging 2.06% to trade at 1253 ahead of the New York close on Friday. The advance marks the largest weekly gain since May and has been supported by continued weakness in the greenback with the DXY down more than 1.3%. Looking ahead to next week, price action looks poised for another push higher with key U.S. event risk on tap.

The FOMC interest rate decision is slated for Wednesday with traders looking for any alterations in the central bank’s policy outlook. Gold has been kept afloat by a softening in expectations that the Fed will inevitably delivery on its projections for another rate-hike this year. As it stands, market participants are factoring only a 52% chance for a 25bps hike in December. While the implications of a delay in normalization are bullish for bullion, prices are now targeting key longer-term resistance targets, putting the topside-bias at risk heading into next week.

• A summary of IG Client Sentiment shows traders are net-long Gold - the ratio stands at +3.89 (79.5% of traders are long)- bearish reading
• Long positions are 2.5% lower than yesterday and 11.7% lower from last week
• Short positions are 8.9% lower than yesterday but 12.3% higher from last week
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may fall. That said, retail is more net-long than yesterday but less net-long from last week and the combination of current positioning & recent changes gives us a further mixed near-term Spot Gold trading bias from a sentiment standpoint.

Gold Weekly

Gold prices reversed off confluence support last week at the March low-day close / 50% retracement of the December rally at 1204/09. Note that the 61.8% line of the broader ascending pitchfork formation extending off the 2013 & 2016 lows also converged on this region. The rally is now approaching key slope resistance extending off the 2016 high – this is a parallel of the slope extending off the 2011 record highs.

Gold Daily

The focus is on resistance here at the confluence of the upper parallel and the June opening range lows at 1258 with the broader outlook tilted to the topside. Look for initial support back at the monthly open at 1241 backed by bullish invalidation at the 200-day moving average ~1230.

A breach above the highlighted resistance zone puts the broader up-trend back in focus with such a scenario targeting a sliding parallel extending off the January highs, currently around 1280s.

Gold 240min

A closer look at price action highlights a near-term channel extending off the monthly lows with the upper parallel converging on the 1259/61 Fibonacci zone. Look for a reaction there with the near-term outlook constructive while above 1230. A breach higher targets subsequent resistance objectives at 1270 and 1281.Bottom line, if gold is going to pullback near-term, 1260 would be a good spot. Ultimately we’ll be looking for long-entries on move back towards support.