Gold Prices: Flat, Higher or Sideways

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Last Friday, gold futures extended their losing streak to a sixth straight session and posted nearly 5% loss for the week. That was the largest one-week decline since mid-September 2013. Gold prices were volatile as traders looked to the latest monthly U.S. employment data for clues on the likelihood of interest-rate increase before the year’s end.

December gold settled at $1,251.90 an ounce after tapping a high of $1,267.60. Prices held ground at their lowest level since early June.

Looking forward to the current trading week, most investors expect gold prices to be either higher or move sideways. Wall Street analysts maintain generally bullish outlook despite gold’s recent tumble. Some suggest that the yellow metal is now “oversold” on a technical basis.

Several signs point to an interim low in gold following a week when long liquidation dominated and volume for lead-month gold futures was the largest on a price-decline day since June 2013. Dollar strength would likely be gold’s headwind but with the dollar Index now back to the July high, gold’s pullback should build some support at this point. A modest recovery rally to $1,280 is very much likely to occur over the next week.

Gold has entered a buying zone, which is somewhere from $1,220 to $1,270 an ounce. The last week’s selloff has been overdone and the yellow metal is technically oversold so markets could be ready for a trading bounce.

On the other hand, there’s a growing disconnect between the latest selloffs in GBP and EUR, which indicates growing fear of political risk, and last week’s selloffs in gold and JPY that indicate reduced fear of instability and increased complacency. It looks like defensive flows have gone into USD, which carries its own political risks with the nearing election.

Overall, the medium term outlook for gold prices remains cautiously bullish, having into consideration the uncertainties surrounding the U.S. election and still-questionable soundness of the European banking system.

Gold could trade flat in the coming week, as it takes time to recover from the kind of large drop we saw last week. Still, gold will recover in coming weeks.

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