It’s been another interesting week in financial markets and as head into the final sessions of the week traders are already starting to share stories of the week’s big wins and big losses. As always, it’s the missed trades that are capturing the most attention and this week, the big move everyone is talking about is the more than 3% sell off in gold. So, let’s take a look at what caused the move and why this was a great trade and as always; if you caught the move? Well done! And if you missed it? There’s always next week!
What Caused the Move?
The big driver behind the move lower in gold this week was the resurgence in the US Dollar. The greenback has been under plenty of pressure recently. Lacklustre comments from Fed chairman Powell at the Jackson Hole symposium, a slew of data misses (NFP, CPI) and dwindling Fed tapering expectations have all weighed heavily on the Dollar.
However, into the back end of this week, the better-than-expected August retail sales print helped reignite demand for USD. A solid beat on both the core and headline readings for August has fuelled hopes for a better Q3 GDP print. With this in mind, the focus has shifted back to Fed tapering expectations. The market is currently pegging November as the likely date for an announcement meaning that any further positive data-surprises for the US will likely see USD trading higher still, hindering the near-term outlook for gold.
The big focus now will be on next week’s September FOMC meeting. In light of the mostly weaker data we have seen recently, the Fed is likely to stick a similar message as we heard last time around. Unless there are any clear hawkish signals, this might frustrate USD bulls once again, leading USD lower and gold higher. However, if the Fed does talk more about tapering, this will likely see USD sharply higher and gold lower consequently. Let’s take a look at the technical picture.
The reversal lower from the 1826.71 level has seen price trading back down to retest the broken bear channel and the 1763.88 level. For now, this area is holding as support and though indicators are turned lower, there is room for a continuation higher if this area holds. Below, 1700 is the next key support to note.