Fundamental Forecast for Gold: Bullish

• Gold rally eyes resistance as threat of ‘Fire & Fury’ weigh on risk appetite

Gold prices rallied this week with the precious metal up 2.3% to trade at 1287 ahead of the New York close on Friday. The advance comes amid growing geopolitical tensions between the U.S. and North Korea with fears over an impending war weighing on global equity markets, all of which closed lower on the week.

As investors wait to see how the Korean threat plays out, U.S. economic data has also continued to come in soft with headline PPI & CPI data missing estimates this week. Highlighting the economic docket next week will be the July retail sales and the release of the minutes from the latest FOMC policy meeting. Expectations for a December rate-hike have all but diminished with Fed Fund Futures pricing just a 30% chance the central bank will deliver on its promise for a final 25 bps hike this year.

With interest rate expectations continuing to fall, rising geo-political tensions and weakness in broader risk assets weighing on sentiment, gold is likely to remain well-supported in the medium-term. That said, prices are now approaching the 2017 highs and while our broader outlook remains weighted to the topside, the immediate advance is at risk heading into resistance just higher.

• A summary of IG Client Sentiment shows traders are net-long Gold - the ratio stands at +2.05 (67.2% of traders are long)- bearish reading
• Long positions are 9.5% lower than yesterday but 7.6% higher from last week
• Short positions are 3.1% higher than yesterday and 3.6% lower 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 less net-long than yesterday but more net-long from last week and the combination of current positioning and recent changes gives us a further mixed Spot Gold trading bias from a sentiment standpoint.

Gold Daily

Last week we noted that gold prices had tested, “former slope resistance, now support extending off the 2016 highs into the close of the week. IF this advance has further upside to go, losses should be limited to the 100-day moving average with our bullish invalidation level now raised to 1244. Interim resistance still 1274 with a breach targeting the yearly high-day close at 1293.”

Indeed price tested and held above the 100-day moving average with this week’s high registering at 1292 on Friday. A look at the previous two attempts to clear this level highlights the threat to the immediate advance while below this level.

Gold 240min

A closer look at price action shows prices breaking above an embedded bull-flag, keeping gold within the ascending channel formation we’ve been tracking for weeks now. Initial support now 1281 backed by 1274 with our near-term focus higher above monthly open support at 1268.

Resistance targets remain unchanged at 1293 & the 100% extension at 1296. Note that channel resistance comes in just higher and the advance is at risk heading into these levels next week. Bottom line: look for a reaction at these resistance levels with the medium-term focus weighted to the topside while within this channel formation.