Gold: Facing Further Negative Rate Rhetoric?

Gold had a strongly volatile week as much of the information contained within the Fed’s various statements was contradictory. Early in the week saw Janet Yellen testifying before congress and largely suggesting that the 2016 rate hikes were on track before contradicting herself and suggesting that negative rates had been analysed and discussed. This statement was further supported by ex-Fed member Kocherlakota who suggested that negative rates are needed now for the US economy.

Subsequently, Gold swung sharply and managed to recover some of the losses from early in the week, closing around the $1226.20. Moving forward, there is mounting speculation that the week ahead could again be volatile as the Fed trots out their regular spruikers for another round of hide the negative rate.

It would appear that the US Federal Reserve, and in particular the FOMC, is attempting to set market expectations towards the potential for easing in the near term. It’s difficult to know whether the rhetoric is actually readying the market for global slowing, or indeed attempting to depreciate the Dollar by stealth to support US exports. Regardless, the Fed’s latest attempt at setting expectations has likely been a disaster given the volatility it caused in the broader currency markets. Subsequently, one is left to wonder if the scheduled list of Fed speakers this week is tasked with calming the waters or further inducing a storm.

Looking ahead, Gold is likely to focus upon the US Core Durable Goods Orders figures, due Thursday. The key economic indicator is forecast to improve from -1.0% to 0.2%m/m but a miss could buoy the metal markets significantly. In addition, the Fed’s unstoppable PR road-show rolls in to town as Kaplan, Williams, and Powell are due to speak in a likely attempt to walk back some of the negative rate jitters. Subsequently, expect to see some sharp volatility as the inevitable jaw boning continues.

From a technical perspective, Gold’s recent pull back demonstrates that there are plenty of buyers around the key $1200 handle. In addition, the weekly chart shows that the prior five sessions have all formed hammer candles that provide a bullish outlook for the metal. Subsequently, Gold is likely to remain trending higher but expect a pullback before the metal recommences its push.

Support is currently in place for the pair at $1190.75, $1162.07, and $1142.25. Resistance exists on the upside at $1239.75, $1263.31, and $1307.20.