Gold view remains intact as published in the report titled “Gold Analysis: "Safest" safe haven eyes USD 1350-1400/Oz by Aug-Sep 2015â€. The following report is an update for an anticipated upside level of USD 1300/Oz in a month’s time.
Gold prices suffered losses in the first half of the current week; falling from USD 1232.3/OZ to USD 1203/Oz today.
The decline in the prices was largely triggered by a recovery in the USD index on the back of a strong US housing sector data. The US dollar also got a boost due to the slump in the EUR on renewed Greek concerns. Moreover, the yellow metal failed to find support as a safe haven asset on Greek concerns.
Thus, Gold recovered from the low of USD 1203 to trade at USD 1210 levels ahead of the minutes release.
In my view, the Fed is likely to focus on weak economic data, while stressing on the fact that Q1 slump is transitory and that economy and labor market would continue to improve at a modest pace ahead. We already have the April jobs report, which showed the job market rebounded in April after sharp weakness in March. With respect to Gold, minutes expressing concerns regarding the US dollar and more focus on domestic slowdown would be bullish.
Two major central banks – Fed and Bank of England – have long stood at the other end of currency wars since Oct 31st 2014. With UK inflation falling below zero levels in April for the first time since 1960 and EUR/GBP at multi year lows, the possibility of BOE turning dovish has increased. In its quarterly inflation report, the BOE revised its GDP and inflation forecasts lower and hinted at gradual hike in rates than expected earlier.
The dovish tilt by the Fed would mean both previously hawkish central banks have now switched sides. This could very well trigger retaliatory action by other major central bankers. We already saw fresh jawboning by ECB’s Coeure and Noyer yesterday, after which the EUR/USD fell to 1.1060 levels. Furthermore, the bond yields have gone up sufficiently for another round of currency wars to begin.
Thus, the yellow metal to stands to gain in case the minutes, tilt to the dovish side. Over the course of the next month or so, prices could rise towards USD 1300/Oz levels.
The upside momentum would strengthen even further in case the dovish Fed minutes today are followed by a weaker-than-expected core CPI (exp 1.7%, prev 1.8%) and hedline CPI (exp 0.0%, prev -0.1%).
A look at the monthly chart indicates
Gold prices suffered losses in the first half of the current week; falling from USD 1232.3/OZ to USD 1203/Oz today.
The decline in the prices was largely triggered by a recovery in the USD index on the back of a strong US housing sector data. The US dollar also got a boost due to the slump in the EUR on renewed Greek concerns. Moreover, the yellow metal failed to find support as a safe haven asset on Greek concerns.
Expectations of the dovish Fed minutes
Most of the major data sets in the US have disappointed market expectations off-late. The Retail sales report, industrial production figure released in the last week signaled weakness in the economy. Consequently, the markets are speculating that the minutes would show policymakers focusing more on the weak economy and indicating a scope for a delay in the rate hike.Thus, Gold recovered from the low of USD 1203 to trade at USD 1210 levels ahead of the minutes release.
In my view, the Fed is likely to focus on weak economic data, while stressing on the fact that Q1 slump is transitory and that economy and labor market would continue to improve at a modest pace ahead. We already have the April jobs report, which showed the job market rebounded in April after sharp weakness in March. With respect to Gold, minutes expressing concerns regarding the US dollar and more focus on domestic slowdown would be bullish.
Dovish minutes could trigger another round of currency wars
Nevertheless, a dovish tone is likely to support Gold prices in a big way, opening doors for a rise to USD 1300/Oz levels in a month or so as it could trigger another round of currency wars.Two major central banks – Fed and Bank of England – have long stood at the other end of currency wars since Oct 31st 2014. With UK inflation falling below zero levels in April for the first time since 1960 and EUR/GBP at multi year lows, the possibility of BOE turning dovish has increased. In its quarterly inflation report, the BOE revised its GDP and inflation forecasts lower and hinted at gradual hike in rates than expected earlier.
The dovish tilt by the Fed would mean both previously hawkish central banks have now switched sides. This could very well trigger retaliatory action by other major central bankers. We already saw fresh jawboning by ECB’s Coeure and Noyer yesterday, after which the EUR/USD fell to 1.1060 levels. Furthermore, the bond yields have gone up sufficiently for another round of currency wars to begin.
Thus, the yellow metal to stands to gain in case the minutes, tilt to the dovish side. Over the course of the next month or so, prices could rise towards USD 1300/Oz levels.
The upside momentum would strengthen even further in case the dovish Fed minutes today are followed by a weaker-than-expected core CPI (exp 1.7%, prev 1.8%) and hedline CPI (exp 0.0%, prev -0.1%).
A look at the monthly chart indicates
- a close above USD 1200 (150% Fib expansion of 1920.8-1522.2-1795.6) could open doors for a re-test of falling trend line resistance currently located around USD 1970.
- A break above the same would shift risk in favor of a rise to USD 1300.95 (50% Fib retracement of 681.1-1920.8).
- 5-MA and 10-MA have already confirmed a bullish crossover.
- Prices have strong support around USD 1150-1155 (161.8% Fib expansion of 1920.8-1522.2-1795.6)
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