Gold Forecast: Bulls could target $1360 in short-run if US retail sales disappoint

Gold (XAU/USD) has regained poise this week as less hawkish Fed minutes led to broad-based USD weakness.

At the time of writing, gold is exchanging hands at $1296 levels. The yellow metal is up 1.42% from the last week's closing level of $1277 and looks set to extend gains beyond the psychological level of $1300.

Monthly chart

Chart Source: JFD

Observations

  • Inverse head and shoulders/rounding bottom neckline resistance seen at $1362
  • Higher lows - $1046.33 (Dec 2015 low), $1122.76 (Dec 2016 low), $1204.82 (July 2017 low), $1260 (monthly low)
  • 5-MA, 10-MA sloping upwards, current month candle has staged a solid rebound from 10-MA support
  • RSI above 50.00 in bullish territory

View

  • On a larger scheme of things, the outlook remains constructive. Prices look set to test the $1365 levels over the next couple of months.
  • The ascent would be faster if the US CPI due today misses estimates and Fed's reverse QE results in risk aversion as discussed here.
  • Only a break below the line drawn from the series of rising tops from Dec 2016 would abort the bullish view on the monthly chart.

Fed Review: Balance sheet taper is good news for Gold

Focus on US CPI & Retail Sales

Retail sales control group is seen rebounding 0.4% in September following a 0.2% drop in August. Meanwhile, consumer price index (CPI) is seen rising 0.6%m/m in September vs. 0.4% in August.

A better-than-expected CPI print may not necessarily lift the US dollar and the spike could be due to temporary effects of hurricanes. On similar lines, the headline retail sales number would be distorted by the impact of hurricanes.

Hence, the fate of the USD depends on the retail sales control group figure, which represents the total industry sales that are used to prepare the estimates of PCE for most goods.

A strong retail sales control group number could lift the USD and ensure that gold prices remain below $1300.

It's all about 10-year treasury yield

The USD could remain weak despite strong retail sales control group data if the US 10-year yield fails to break above 2.4%. Thus, a minor dip in gold (on strong data) would be quickly undone if the yield remains below 2.4%. The yellow metal might resume the journey back to $1250-1240 levels if the 10-year yield sees a solid break above 2.4%.

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