Gold fell on Friday for the first time this week as hawkish comments from U.S. Federal Reserve officials renewed bets on a U.S. rate hike this year, but was still on track to end the week with modest gains.
The split among Federal Reserve officials on whether to boost U.S. borrowing costs is whipsawing gold again.
Futures gained Thursday, a day after the July Fed minutes were released showing policy makers are divided on rates, only to swing to a loss Friday. Comments from Fed Bank of San Francisco President John Williams after gold futures closed on Thursday revived the bearish sentiment on the precious metal, paring this week’s gains.
Williams said Thursday it makes sense to get back to a pace of gradual increases, preferably sooner rather than later. On Tuesday, Dudley said the Fed could potentially raise interest rates as soon as next month, while Atlanta Fed President Dennis Lockhart said he’s confident that U.S. economic growth is accelerating, setting the stage for at least one increase in interest rates this year.
"There is no clear direction from the Fed. Adding to that there are mixed views from the Fed officials," said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central.
Heading into next week, Durable Goods Orders & the second revision of U.S. 2Q GDP will be overshadowed by the annual Jackson Hold Economic Policy Symposium. Federal Reserve Chair Janet Yellen is scheduled to speak on Friday and on the back of this week’s central bank commentary, investors will be looking for clues as to the Chair’s willingness and readiness to move on rates despite global efforts to provide further monetary stimulus. For gold, the technicals are clear that a surge in volatility is likely on the horizon for prices heading into the close of the month.
The prices continue to hold below key long-term trendline resistance extending off the record 2011 high. This week’s range ties for the smallest weekly range of the year- the last time was the week ending 7/22 (was the low for the month).”
Prices remain at, “risk for further losses while below the high-day close at 1355 with interim support seen at 1325/30. We’ll be looking for a break of the objective monthly opening range with a break lower targeting 1303 & a more significant support confluence at 1287 where the 50% retracement of the late May advance converges on a pair of median-lines – Both areas of interest for possible short-side exhaustion / long-entries… ultimately we’re looking higher in gold with a breach above near-term downtrend resistance targeting 1380.” Continue to track this trade throughout the week on SB Trade Desk.
For the second week, gold has been caught in a narrow range and analysts expect more of the, at least until markets hear what Fed Chair Janet Yellen has to say in Jackson Hole.
Some analysts said they are not ruling out the chance of a bigger correction in the near-term.
In a report Friday, commodity analysts at Bank of America Merrill Lynch warned that elevated speculative long positions raises the risk of a contrarian short trade in the near-term. However, the bank remains optimistic on gold as they still expect investor demand, especially in gold-backed exchange- traded products, will push gold prices to $1,500 an ounce by 2017.
According to some analysts, the first support level to watch is around $1,340 an ounce, which has held since late July. Analysts at iiTrader.com noted that a break of this support level should lead to a test of the next support range between $1,319.30 and $1,316.60 an ounce.
Reference: Bloomberg, The News, Daily FX, Kitco
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