Gold set to rise for third week

As we approach the end of another exciting week in the markets, gold is finding itself at levels not seen since mid-June. At a good $1268 per troy ounce, the yellow metal is now up for the third straight week, having managed to recoup about three quarters of the losses it had suffered when it fell from $1295 at the start of last month. The dollar-denominated commodity is supported above all by ongoing weakness in US dollar. It has been held back by the still positive sentiment on Wall Street, where the Dow has hit a new record high despite yesterday’s sharp sell-off in some technology names. Had it not been for the rising US stock prices, gold would surely have found itself much higher by now given the extent of the dollar’s decline.

The greenback fell again today, most notably against the euro and yen. News of a pickup in the rate of US economic growth in the second quarter was offset by softer wage growth and inflationary pressures. Today’s US macro pointers weren’t disastrous by any means. But on balance they weren’t what the dollar bulls wanted to see, underscoring the struggles the world’s largest economy has faced in recent months. They better hope that next week brings them better fortune.

US GDP grew by an above-forecast 2.6% in Q2 on an annualized format, which was better than 2.5% expected. There was an upward revision to Q1 GDP too, from 0.7% to 1.4%. However, the so-called GDP price and employment cost indices both rose by weaker-than-expected 1.0 and 0.5 per cent respectively. What’s more, the revised University of Michigan Inflation Expectations eased to 2.6% from 2.7% previously.  \

It is going to be an extremely busy week for the economic calendar next week, and not just in the US. Key data from China, Eurozone, UK and US will dominate the agenda, not to mention New Zealand or Canada. In the US, it will be Friday’s employment figures that will probably cause the most reaction in the markets. In addition, there will be two major central bank policy decisions from the Bank of England and the Reserve Bank of Australia. On top of all this, there will be more corporate earnings to look forward, for example from Apple and HSBC. So, there will be something for everyone next week.

But as far as gold is concerned, it continues to break key resistance levels and so far there’s not a lot the bears can latch onto. That double top formation at $1295 is looking increasingly like a ploy to trap the sellers. I reckon there is a cluster of buy stop orders resting above that $1295 area and that these orders may attract the price of gold towards it, leading to an eventual breakout – similar for example to how the EUR/USD approached and then breached its own key level at 1.1710 this week.

Figure 1: