• Gold is stuck in a four-month falling channel. 
  • Fed's ongoing balance sheet expansion and lingering trade tensions could fuel price breakout. 

Gold could soon witness a bullish breakout, courtesy of the US Federal Reserve’s (Fed) continued expansion of its balance sheet.

The yellow metal is currently changing hands at $1,477 per Oz and is set to end the week with a 1.17% gain. That is the biggest weekly gain since the third week of September. 

The metal, however, is still trapped in a falling channel represented by September and November highs and October and November lows. 

The outlook, therefore, remains neutral, despite the biggest weekly gain in three months. 

Fed turns dovish

Gold’s weekly gain could be associated with President Powell’s comments on inflation and interest rates. 

While the US central bank kept interest rates unchanged at 1.25-1.5% on Wednesday, Powell offered a dovish surprise by citing persistent high inflation as a prerequisite for rate hikes. 

As a result, the dollar was offered across the board post-fed and extended losses on Friday, on the news of the US-China trade deal and due to Brexit optimism generated by British Prime Minister Boris Johnson’s decisive election victory.

Fed’s balance sheet expansion

The central bank is planning to offer a total of $490 billion in liquidity via repo operations for the turn of the year, including the $75 billion that it has already pumped in through three earlier term actions, according to Bloomberg. 

The Fed has also announced new term operations totaling $365 billion that will take place this month and in January.

Put simply, the Fed is set to bloat its balance sheet further, having expanded it more than $300 billion since mid-September. 

Historically, Fed’s balance sheet expansion programs have boded well for gold. For instance, the initial expansion of the Fed’s balance sheet began in 2009. At that time, the balance sheet was below $1 trillion, but by 2014, it had increased to $4.5 trillion. 

During that time frame, gold rose from $800 to $1,200, having peaked at a record high of $1,921 in September 2011. Note that prices fell from highs above $1,600 to $1,200 in the first six months of 2013 due to taper tantrum. 

All in all, there is a strong reason to anticipate a near term bullish move in gold on the back of Fed’s balance sheet expansion. 

Trade war not over yet

China and the US have reportedly agreed on a ‘phase one’ deal. A press conference by China and tweets by US President Trump confirmed that no additional tariffs will be imposed this Sunday. Additionally, the US has reportedly agreed to halve the tariffs on products worth $110 billion from 15% to 7.5%, according to ING’s note to clients. 

As of now, the entire exercise looks like a public relations effort to project Trump as a deal maker ahead of the November 2020 Presidential elections. 

Moreover, sensitive issues such as indirect Chinese state subsidies, intellectual property theft and the US' wish that China lets go of its ambition to dominate tech markets are yet to be negotiated. 

With trade war still on and phase one deal priced in, gold looks set to pick up a strong bid while heading into the new year. 

The bullish pressures would strengthen if the Chinese industrial production and retail sales data due on Monday miss consensus estimates by a big margin. The US Gross Domestic Product (Q3), scheduled for release on Friday, could also influence gold.

GMT
Event
Vol.
Actual
Consensus
Previous
Monday, Dec 16
01:30
 
 
7.8%
02:00
 
7.6%
7.2%
02:00
 
5.0%
4.7%
02:00
 
 
02:00
 
5.2%
5.2%
13:30
 
4.0
2.9
14:45
 
52.4
52.6
14:45
 
51.4
51.6
14:45
 
51.9
52.0
15:00
 
70
70
16:30
 
 
1.52%
16:30
 
 
1.52%
21:00
 
$28.7B
$-37.6B
21:00
 
$22.6B
$49.5B
Tuesday, Dec 17
13:30
 
 
5%
13:30
 
 
3.8%
13:30
 
1.340M
1.314M
13:30
 
1.410M
1.461M
13:55
 
 
-3.6%
13:55
 
 
5%
14:15
 
0.8%
-0.8%
14:15
 
77.2%
76.7%
15:00
 
7.111M
7.024M
n/a
 
 
52.9
17:30
 
 
21:30
 
 
1.41M
Wednesday, Dec 18
10:15
 
 
12:00
 
 
3.8%
16:00
 
 
0.822M
17:40
 
 
Thursday, Dec 19
13:30
 
 
$-128.2B
13:30
 
 
13:30
 
 
13:30
 
 
13:30
 
8.5
10.4
15:00
 
5.45M
5.46M
15:00
 
1.4%
1.9%
15:30
 
 
-73B
16:30
 
 
1.54%
Friday, Dec 20
01:30
 
 
4.15%
13:30
 
1.7%
1.7%
13:30
 
2.1%
2.1%
13:30
 
1.5%
1.5%
13:30
 
2.1%
2.1%
15:00
 
0.1%
0.2%
15:00
 
0.5%
0.3%
15:00
 
0.1%
0.1%
15:00
 
0.3%
0.0%
15:00
 
1.3%
1.3%
15:00
 
1.6%
1.6%
15:00
 
97.0
99.2
16:00
 
2
-5
18:00
 
 
667
20:30
 
 
20:30
 
 
20:30
 
 

Technical outlook

The five weeks of sideways churn has neutralized the bearish setup. 

The outlook would turn bullish if and when the metal confirms a falling channel breakout. That would imply a resumption of the rally from lows near $1,270 registered in May and open the doors for a retest of the 2019 high of $1,557 reached in September. The channel resistance would be located at $1,488 next week. 

The outlook would turn bearish if the sideways channel seen on the daily chart is breached to the downside. That would validate the bearish crossover of the 50- and 100-day averages and will likely yield a drop to $1,430. 

Weekly chart

Daily chart

Gold Forecast Poll

The Forex Forecast Poll is a sentiment tool that highlights near- and medium-term price expectations from leading market experts. As can be seen, the market is bearish on gold across all time frames. The yellow metal is seen falling to $1,464.82 next week and remain around that level four weeks from now. A minor recovery to $1,484 is expected in three months time.

 

1 Week
Avg Forecast 1464.82
0.0%100.0%36.0%0-100102030405060708090100110
  • 36% Bullish
  • 64% Bearish
  • 0% Sideways
Bias Bearish
1 Month
Avg Forecast 1465.07
100.0%86.0%36.0%030405060708090100
  • 36% Bullish
  • 50% Bearish
  • 14% Sideways
Bias Bearish
1 Quarter
Avg Forecast 1484.08
100.0%75.0%33.0%030405060708090100
  • 33% Bullish
  • 42% Bearish
  • 25% Sideways
Bias Bearish

 

The path of Gold has fallen on a dovish Fed and relief that the Us-China trade deal looks like going through. However, please note that gold buyers historically come into the market around January time for the lunar New Year. So, that is why the 30-day outlook for gold is higher than you might otherwise expect. ETF’s, Hedgefund’s and India. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content


Recommended Content

Editors’ Picks

USD/JPY off lows, stays pressured near 142.50 ahead of BoJ policy decision

USD/JPY off lows, stays pressured near 142.50 ahead of BoJ policy decision

USD/JPY has bounced off lows but remains pressured near 142.50 in the Asian session on Friday. Markets turn risk-averse and flock to the safety in the Japanese Yen while the Fed-BoJ policy divergence and hot Japan's CPI data also support the Yen ahead of the BoJ policy verdict. 

USD/JPY News
AUD/USD bears attack 0.6800 amid PBOC's status-quo, cautious mood

AUD/USD bears attack 0.6800 amid PBOC's status-quo, cautious mood

AUD/USD attacks 0.6800 in Friday's Asian trading, extending its gradual retreat after the PBOC unexpectedly left mortgage lending rates unchanged in September. A cautious market mood also adds to the weight on the Aussie. Fedspeak eyed. 

AUD/USD News
Gold price treads water below record peak, awaits Fedspeak

Gold price treads water below record peak, awaits Fedspeak

Gold price hovers below the all-time peak touched earlier this week amid a bearish US Dollar and rising bets for more upcoming rate cuts by the Fed. Concerns over an economic downturn in China keep the safe-haven Gold price afloat. Fedspeak remains on tap. 

Gold News
Bank of Japan set to keep rates on hold after July’s hike shocked markets

Bank of Japan set to keep rates on hold after July’s hike shocked markets

The Bank of Japan is expected to keep its short-term interest rate target between 0.15% and 0.25% on Friday, following the conclusion of its two-day monetary policy review. The decision is set to be announced during the early Asian session. 

Read more
XRP eyes gains as Ripple gears up for stablecoin launch, Grayscale XRP Trust notes rising NAV

XRP eyes gains as Ripple gears up for stablecoin launch, Grayscale XRP Trust notes rising NAV

Ripple (XRP) gained 2.3% since the start of the week. The altcoin’s gains are likely powered by key market movers that include Ripple USD (RUSD) stablecoin, Grayscale XRP Trust performance and the demand for the altcoin among institutional investors.

Read more
Moneta Markets review 2024: All you need to know

Moneta Markets review 2024: All you need to know

VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.

Read More

Majors

Cryptocurrencies

Signatures