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Gold: QE Concerns To Keep Prices Above $1,300 This Week
Written by article default Friday, 01 October 2010 03:54
Gold: QE Concerns To Keep Prices Above $1,300 This WeekFundamental Forecast for Gold: Neutral
* Gold Could Reach 1400 By December
* Gold Hits New Record But Momentum Fading
Gold continued its northern journey this week to reach a fresh record high through Friday’s close as concerns of quantitative easing by central banks continued to rattle the markets. Looking ahead, the strength in the bullion is unlikely to lose momentum, and as long as price action can close above Thursday’s high, market participants should not rule out a test of 1,330 next week.
During this past week, the larger than expected drop in U.S. consumer confidence added fears of quantitative easing by the Fed as the economy continues to face a weak labor force, tight credit conditions, and an uncertain outlook. This will continue to be a huge factor going into next week’s trade as market participants await the nonfarm payrolls report. As of late, economists are forecasting a 5K rise in payrolls, and a 9.7 percent gain in the unemployment rate for the month of September from 9.6 in August. An unexpected reading to the downside could spark a flight to safety, and lead the yellow metal to a fresh record high. Meanwhile, dovish comments by Fed’s William Dudley on Friday will likely have an impact on the U.S. dollar and the bullion heading into next week’s trade. Mr. Dudley stated that the Fed is likely to take additional action to rejuvenate the economy and lower unemployment, and added that “further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes.”
At the same time, the Bank of England’s hint towards quantitative easing remains in the spotlight as the single currency is down against all of its major counterparts except against the U.S. dollar. The disappointing PMI figures from the region added additional concerns of QE, while fears of European debt will be sure weigh on the bloc, and push gold higher as traders look for an alternative during this period of global economic uncertainty. Also of note, the World Gold council earlier this week stated that central banks and the IMF sold the smallest amount of the yellow metal during the year through the 25th.
Taking a look at price action, the bullion continues to maintain its ascending channel which has remained intact since the beginning of August, with the metal now eying $1,330 for next week. Until we see a break below the lower bounds of the channel, I do not recommend entering into a short position. However, once a crossover before the lower bounds comes to light, gold could retest $1,260 in the months following. All in all, remain long this week unless a break below the range becomes apparent (which is highly unlikely).
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