Gold Prices Snap Four Week Losing Streak On Disappointing CPI

Fundamental Forecast for Gold: Neutral

• Gold prices fall near two-month lows, CPI to confirm / trigger near-term low

Gold prices snapped a four-week losing streak with the precious metal up nearly 2% to trade at 1301 ahead of the New York close on Friday. The advance comes alongside continued strength in broader equity markets and with the DXY turning from key technical resistance this week.

Minutes released from the latest FOMC policy meeting highlighted ongoing concerns within the committee that the current subdued inflationary outlook may in fact not be a transitory event. The subsequent release of the U.S. Consumer Price Index (CPI) further emphasized these concerns with both the headline and core rate of price growth missing consensus estimates. With soft inflation continuing to plague the central bank’s exit strategy, gold may continue to benefit as the dollar is likely to remain under pressure.

Heading into next week, traders will be lending a keen ear to slew of central bank rhetoric with FOMC voters William Dudley, Robert Kaplan, Patrick Harker and Fed Chair Janet Yellen slated for remarks. For gold prices, while the broader focus remains constructive, the risk remains for a near-term pullback in price.

• A summary of IG Client Sentiment shows traders are net-long Gold - the ratio stands at +3.92 (79.7% of traders are long)- bearishreading
• Long positions are 5.1% lower than yesterday but 7.6% higher from last week
• Short positions are 0.6% higher than yesterday and 3.1% 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 continue to fall. However, 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

Gold rebounded off the 61.8% retracement of the July advance at 1263 earlier this month with the subsequent rally pushing through resistance at 1295/98 into the close of the week. A close above this level keeps the focus weighted to the topside with topside targets eyed at 1320 backed by the yearly high-day close at 1346. Note that price have now posted 6-days of consecutive advances and leaves gold vulnerable for some sort of exhaustion pullback before continuing higher.

Gold 240min

A closer look at price action highlights a breach of the descending channel we’ve been tracking since last month with a newly formed ascending slope formation continuing to guide the advance. Look for initial support along the median-line / 1290 with near-term bullish invalidation raised to 1279/81.

A breach above channel resistance targets initial objectives at 1309 backed by 1320. Bottom line: from at trading standpoint I would be looking for weakness early next week to offer favorable long entries while above 1279.