Gold underpinned by weaker US data; potential for sharp move Wednesday

Today gold is trading higher along with all the other precious metals. It has taken the yellow metal three days to respond to the falling US dollar, which has weakened against a basket of foreign currencies after the release of some disappointing data. On Friday we saw sales of new homes come in at a six-year high for September, but the 0.2% increase was below expectations while the August sales were revised sharply lower. Pending home sales likewise increased by a meagre 0.3% month-over-month as we found out on Monday, missing expectations of a 1.1% growth by a mile. And today, we had some really bad durable goods orders data: the headline figure fell by a good 1.3% in September while core orders dipped by 0.2%. Expectations were for +0.4 and +0.5 per cent, respectively. Nevertheless, a surprisingly sharp increase in consumer sentiment – the Conference Board’s index increased to 94.5, no less, from 89.0 previously – helped to limit the dollar’s fall, which in turn, caused the price of gold to come off the session high. Meanwhile the appetite for riskier equities remain strong, in particular technology stocks: shares in Apple and Facebook, for example, have hit fresh record highs today while Alibaba momentarily surpassed the $100 mark for the first time. This suggests that the demand for gold as a safe haven is almost non-existent at the moment. But had it not been for the rallying stock market, gold could have found itself at much better levels. However this could all change by the close of play tomorrow. If the outcome of the FOMC’s meeting is one that is somehow bearish for both the dollar and stocks then this could boost gold prices. For example, the Fed could suggest that interest rates will be kept at the current record low level for even longer than previously thought, but at the same time dismiss the prospects of QE4.

With just one day to go until the direction of US monetary policy hopefully becomes clearer, gold is stuck inside the $1222-1240 range. The upper end of this range ties in with the 50-day moving average while the lower end was previously support and resistance. In my view, a decisive break outside of this range could see prices move sharply in that direction. On the downside, the next support level to watch is at $1210/11 – the 61.8% Fibonacci retracement of the upswing from this month’s low. If gold breaks below here then a retest of the key $1180/5 support area would become highly likely. On the upside, the next potential resistance beyond $1240 is this month’s high at $1255, followed by the 61.8% Fibonacci retracement of the last downswing at $1283.

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Source: FOREX.com. Please note this product is not available to US clients.