Monday, February 2, 2015
Gold prices received a modest boost on Friday as U.S. Q4 GDP estimate was below expectations. The Commerce Department reported that the U.S. economy expanded by 2.4% in the last 3 months of 2014, which was well below the 5.0% growth reported for Q3. While consumer spending increased to end 2014, businesses are still reluctant to open the checkbook. The apparent slowdown in U.S. growth may encourage the Fed to remain patient with a move towards raising interest rates this year, which would be viewed as a positive development for holders of Gold.
Few would argue January was not kind to commodity bulls as markets from Corn to Zinc have been mired in a bearish trend. Gold appeared to be among the few "outliers", as prices were trading over $100 per ounce higher than we saw at the end of 2014. Gold prices have gained over 9% this month as some investors and traders moved assets towards Gold as an alternative to the volatility seen of late in both the equity and currency markets. However, the bullish trend has started to run into some headwinds with the surging U.S. Dollar making gold purchases more expensive for non-dollar buyers and secondly, a moderately "hawkish" stance by the Federal Reserve following the January Federal Open Market Committee (FOMC) seems to imply that the Fed is still on track to at least move towards a "token" interest rate increase starting sometime in the second half of the year, despite the economic headwinds seen in a large chunk of the global economy. That appears to leave both high quality government bonds and the U.S. Dollar as the remaining "safe havens" that traders are currently moving towards as financial market volatility remains elevated.
Looking at the weekly continuation chart for Gold futures, we notice prices forming a base following the steep price decline from all-time highs back in 2011. Near-term momentum favors Gold bulls, as prices have moved above the 20-week moving average (MA). The 14-week RSI has turned positive with a current reading of 55.10. Any major upside movement would have to overcome some major obstacles such as the 200-week MA and the downtrend line drawn from the 2011 highs. It would take a weekly close above 1500.00 to confirm the bearish trend has ended. The next resistance level is seen at 1392.60, with support found at 1130.40.
Mike Zarembski, Senior Commodity Analyst