Will Gold's Resurgence Survive the Week Ahead?

The precious metal has had a mixed few weeks as the precious metal appears to be seemingly disconnected with the current market turmoil. However, the week ahead is likely to be a critical one as the yellow metal faces a slew of US economic data and China unrest.

Last week saw Gold closing lower despite a spike late in the week, fuelled by a lacklustre US Retail Sales and PPI result, which fell -0.1% and -0.2% respectively. Given that the metal saw some sharp gains in the prior week the market was looking for a consolidation of that rally. Subsequently, sentiment for the metal continued to worsen prior to the small rally late in the week.

Looking ahead, Gold is facing a volatile week as the market awaits the Chinese GDP and the US CPI figures. Given the mounting concern over China’s slowing economy it is likely that any miss from the GDP figures could potentially impact market sentiment. Subsequently, expect to see Gold react strongly to both the Chinese GDP and US CPI results. Any perceived weakness could see the precious metal challenging the $1113 high.

Analysing Chinese growth and trade balances can be a difficult prospect given much of the obfuscation that occurs within their reporting data. However, when you take into account the reduced commodity imports, and severely depressed rail freight data, it becomes clear that there has indeed been a domestic slowdown within the Chinese economy.

Obviously this level of uncertainty would normally be reflected in the prices of safe-haven assets like gold. However, in recent years, Gold has practically uncoupled from both the US money supply as well as the risk index. What this means is that recession in China doesn’t necessarily correlate to an immediate Gold price rise. The channel is now more indirect and there is a factor of time lag to Gold’s price movements. Subsequently, expect the impact of depressed Chinese growth figures to take some time to gradually flow through to precious metals.

From a technical perspective, Gold remains trapped within a bearish channel that has been capping its price action. However, the recent rally has placed the 100-Day moving average firmly in play and any move to the upside is likely to challenge that level. The RSI Oscillator remains within neutral territory as it currently meanders without a strong trend.

The reality is that the precious metal remains trapped in a bearish channel that will continue to cap any gains and dictate the future direction of the metal. It is therefore unlikely that Gold bugs will profit from their large physical positions without the metal exhibiting a confirmed break of the long run bear trend.

So keep playing the bounces and belay any talk of the coming Gold backed economy!

Support is currently in place for the pair at $1071.38, $1045.96, and $1035.55. Resistance exists on the upside at $1097.67, $1112.91, and $1156.53.