Gold to approach 1,100 as bears prolong decline

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Source: Dukascopy Bank SA
  • Share of long open trades remains upbeat at 59%
  • Key resistance area created by 55/20-day SMAs at 1,117-19
  • Bearish risks rising as price is going to approach 1,100
  • Economic events to watch in the next 24 hours: Italian CPI (Aug); Euro zone Industrial Production (Jul), Swiss Retail Sales (Jul) and Producer/Import Prices (Aug); RBA Meeting Minutes; Bank of Japan Interest Rate Decision and Monetary Policy Statement

© Dukascopy Bank SA
Commodities were mostly losing value on Friday as only corn and natural gas advanced by 3.4% and 1.5%, respectively. On the side of losers, oil dropped in the range between 1.1% and 1.5%, while additional bearish risks are increasing. Among them, the major investment bank Goldman Sachs cut its 2016 forecast to $49.50 per barrel, down from the previous expectation of $62. Moreover, the bank's analysts said the price may fall as low as $20 as they pointed at extreme oversupply that exists in the market.

Gold traded near its one-month low on Monday after falling 0.6% on Friday as investors are waiting for the Fed's crucial meeting later this week. Fears over slowing economic growth in China, mixed economic data and turbulence in financial markets have fuelled doubts about the timing of any US rate hike, which had been expected as early as this month. Moreover, data on Friday showed US consumer sentiment dropped to the lowest level in a year in early September and producer prices remained flat in August, pointing to moderate economic growth and benign inflation that could impact the Fed's decision whether to hike interest rates.


Meanwhile, US producer prices remained flat last month, suggesting benign inflation pressures that could impact the Fed's decision whether to hike rates this week. The unchanged reading of PPI in August followed the 0.2% increase in July, according to the Labor Department. Excluding the volatile food and energy components, core prices climbed 0.3% in August, the same pace as in the previous two months. However, much of that increase was due to an increase in the volatile trade-services category. In the 12 months through August, producer prices dropped 0.8% following a similar fall in July. It was the seventh consecutive 12-month decrease in the index.

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Upcoming fundamentals: Is the Bank of Japan going to increase stimulus?



The Bank of Japan kept its monetary policy stance unchanged in August, but weaker inflation numbers and sluggish economic recovery may force the regulator to provide additional support to the economy at the meeting tomorrow. Moreover, Governor Haruhiko Kuroda is expected to announce a decrease in expectations for exports and growth amid a slowdown in China, Japan's biggest trade partner.


Gold to aim at 1,100 before Fed meeting

Gold has been inching lower since the beginning of this month; however, volatility and the pace of decline stood at quite low levels. On Friday the yellow metal touched the long-term trend-line just below 1,100, but recovered by the end of trading. We see the bullion hovering in sideways trend until Thursday's Fed interest rate decision, even though a slight bearish move is possible. This scenario is supported by daily, weekly and monthly technical indicators, but we assume the support area at 1,087-1,100 will be able to withstand initial bearish pressure.

Daily chart
© Dukascopy Bank SA

In the one-hour chart, the precious metal continues to hover below the upper trend-line of the bearish pattern. The closest support to meet is the major psychological level of 1,100, which has already been touched on Friday.

Hourly chart
© Dukascopy Bank SA

SWFX sentiment holds at 59%

SWFX positive sentiment with respect to gold was unchanged over the weekend as bullish traders are in the majority with 59% of all open positions.

In the meantime, OANDA share of bulls rose to 63.67% of all positions, while SAXO Bank traders are keeping 67% of long open trades, down one percentage point since Friday morning.

















Spreads (avg,pip) / Trading volume / Volatility


Average forecast for the end of this year is 1,150

Meanwhile, traders, who were asked regarding their longer-term views on gold between Aug 14 and Sep 14 expect, on average, to see the metal around 1,150 by the end of December. Though, 57% of participants believe the price will be above this level in ninety days. Alongside, only 19% of those surveyed reckon the price will trade in the range between 1,150 and 1,000 by the end of this year.

© Dukascopy Bank SA

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