XAU/USD prolongs recovery

Source: Dukascopy Bank SA
  • Opened positions for Gold remain positive (64% bullish / 36% bearish)
  • It is possible that Gold will grow in price further, with the closest resistance for it located at 1,283
  • At the same time, the probability of a downside movement exists as well, while for that purpose the closest support is placed at 1,259
  • Upcoming events on January 20: Germany ZEW Economic Sentiment (Jan) and Producer Price Index (Dec), Italy Trade Balance (Nov), China GDP (Q4), Industrial Production (Dec) and Retail Sales (Dec), Canada Manufacturing Sales (Nov), US FOMC Member Powell Speech

© Dukascopy Bank SA
Last Friday, Gold continued with its strong appreciating tendency, as potential risks from SNB's move on the franc's peg to the Euro are increasing demand for safe-haven assets. All in all, every major commodity except the natural gas rose in value on Friday. The latter was down 0.98% on the last day of previous week. The most noticeable advance was posted by oil prices, as they surged 4-5% for both Crude and Brent types. Silver and corn, in turn, added 4.96% and 1.84%, respectively, while Gold was up 1.40%.

Moreover, Gold is also rising in price ahead of the ECB's meeting later in the week and amid uncertainty in global markets, which forced investors to seek safety. As a result, holdings in the top bullion fund, the SPDR Gold Trust, expanded 1.9% to 730.89 metric tons on January 16, the biggest increase since May 2010. Market turbulence following the unexpected decision by the SNB to abandon a cap on the Swiss France last Thursday spurred strong demand for the precious metal, which is often considered as an alternative investment to risky assets.

Consumer prices in the world's number one economy dropped in December from a month earlier, posting the sharpest decline since April 2013. The Labor Department said the cost of living in the US fell by 0.4% month-over-month in December, following the 0.3% drop in the preceding months. On an annual basis, consumer prices cooled to 0.8% growth in the final month of 2014, considerably lower than the 1.3% increase in November, posting the weakest rate of growth since October 2009.

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Chinese economic growth data to impact Gold the most on January 20

In the early morning of Tuesday of the current week, Chinese statistical authorities will release the annual and quarterly GDP data for the last three months through Dec 31. Economic growth is likely to slow down further to 7.2%, calculated year-on-year. This data may raise demand for safe-haven assets including Gold. Besides GDP, China will publish numbers on industrial production and retail sales in the country for December.


XAU/USD keeps medium-term bullish momentum

The XAU/USD cross has breached the most important resistance line, represented by the long-term downtrend at $1,218 and started to develop above this line again on January 9. At the moment it is hard to say whether Gold is able to return back below this level in the foreseeable future. If the bullion consolidates above it, then we may see metal's further increase in the medium-term, with the goal at 2011 low at $1,307. Nevertheless, the long-term outlook for the yellow metal tends to remain negative, mostly reflecting strength of US fundamental factors and gradual recovery in Europe. Therefore, in February-March Gold is still suggested to lose value, which may follow the present rebound soon.

Daily chart
© Dukascopy Bank SA

On Friday, XAU/USD cross surged noticeably for a second consecutive day in a row, as the price of metal added around $20 per ounce to approach monthly R2 and close the trading session at $1,280. This level, however, is strengthened by the Bollinger band and 61.8% Fibonacci retracement around $1,290, which may calm down bulls' intentions to push Gold further to the upside. Despite bullish short and medium-term technical indicators, we see the yellow metal undergoing through the period of correction at least on a daily basis.

Hourly chart
© Dukascopy Bank SA
Read More: Technical Analysis

Bullish majority on Gold drops to 24-day low

Distribution between opened positions for buying and selling Gold is still remaining rather positive and in favor of former, as bulls have a majority with 64% of all trades, a further drop of 4% over the weekend. As a result, share of bulls plummeted to the lowest level in 24 working days. On the other hand, after showing a small majority of bears at 53% back on Friday, now OANDA traders are back to positive as bulls regained their advantage by having 51% of all opened positions. SaxoGroup bullish market participants, in turn, and are now holding 58% of all trades, up two percentage points from Friday.














Spreads (avg,pip) / Trading volume / Volatility


Traders, who were asked regarding their longer-term views on XAU/USD between Dec 19 and Jan 19 expect, on average, to see Gold trading around 1,250 by the end of April. At the same time, 56% of them believe the bullion will be above this mark in three months, while 28% of traders surveyed forecast the bullion to trade in the range between 1,100 and 1,250.
© Dukascopy Bank SA

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