Gold Technical And Fundamental Outlook

09-AUG-2011

Technical

R2=1749.71

R1=1735.63

PP=1709.01

S1=1694.92

S2=1668.31

 

Following its strong rally the past week, Gold gapped through its last week high at 1,681.35. This development had opened the door for further upside gains towards the 1,750 level, its psycho level where a violation will push the commodity further higher towards the 1,785 level and subsequently the 1,800 level. Its daily is bullish and pointing higher suggesting further strength. Alternatively, on any pullback, Gold will aim at the 1,681.35 level, its Aug 04’2011 high. A reversal of roles as support is expected to turn the commodity higher at that level but if that fails to occur and a break below that level happens, further downside weakness will target the 1,632.60 level, its July 29’2011 high and then the 1,600.00 level. The trading range for this week is among the key support at 1627.00 and key resistance now at 1785.00.A technical correction on downside is expected at any time because gold is now in overbought range and can get correction at some point. Use stop loss for every trade carefully.

Fundamental

Gold futures exceeded $1770 an ounce for the 1st time as the global rout in equities and commodities deepened on concern the economic slow down will worsen after S&P's cut the U.S. credit rating. Goldman Sachs Group Inc. raised its forecasts for gold futures yesterday to $1730 in six months and $1860 in a year based on expectation for real U.S. interest rates to stay lower for longer. Demand for haven surged due to the rising fears and concerns regarding the world’s largest economy, in addition to the risky attempts of the European central bank to solve the debt-crisis. S&P followed through on its downgrade activity by cutting the AAA ratings of a number of US-backed bonds, including Fannie Mae and Freddie Mac, by a notch to AA+. The agency said the downgrade was due to their 'direct reliance on the US government. In a statement in the midday, S&P also warned about the Asia-Pacific outlook, citing 'uncertainties in the global financial market and weakened prospects in the developed economies have further undermined confidence. The potential longer-term consequences of a weaker financing environment, slower growth, and higher risk aversion are negative factors for Asia-Pacific sovereign ratings. The next crucial event is the FOMC meeting. Speculations of QE3 have intensified, especially after disappointing GDP report for 2Q11 and recent downgrades by the S&P. However, we do not expect the Fed will announce a new round of outright bond purchases at the August meeting. Rather, it will deliver a more dovish tone in the accompanying statement, acknowledging higher downside risks on the economy and committing to keep interest rates low for a longer period of time than previously anticipated. The Fed may also pledge to keep the balance sheet large for an extended period. Ultimately, the statement should give the market a sense the Fed is stepping in further quantitative easing so as to stimulate economic growth.

 

By

 

M.Zohaib Gadit

Forex Trading Consultant