Gold rallies to a high of $1339.40 in US trade

  • Solid weekly jobless claims numbers bring out gold sellers
  • Technicals still highlighting downside risks
  • Our trade idea is moving in the right direction

Our trade idea from Monday seems to be heading in the right direction, after gold initially rallied to a high of $1339.40 in US trade.

We are heading into the eye of the storm with regards to the US budget negotiations, with the Washington Post saying the chances of a government shutdown have increased on the back of House Speak John Boehner’s comments. Mr Boehner suggested he does not expect the House to pass an ObamaCare inclusive bill when (or if) the Senate pushes it his way on Sunday. Clearly these negotiations will be major driver of gold in the short term as traders look to hedge out any potential event risk. We, like many, are watching these developments very closely.

Solid jobs numbers bring out gold sellers

Gold found sellers through US trade though, so it seems that traders are still very much influenced by US monetary policy and perhaps this could to be the bigger driver going forward, given gold has pulled back to $1323.30 (at the time of writing). We saw slightly weaker-than-forecast Kansas City fed manufacturing numbers and pending homes sales (the weakest in three months); however the clear trump card was the weekly jobless claims.

Employment is one of the big drivers for the Fed; in terms of whether it will look to taper its bond buying programme and the stronger-than-expected print at 305,000 was taken well by markets. If we smooth out the numbers and look at the four-week average, this fell to 308,000 and is thematic of a non-farm payrolls print closer to 200,000. The US payrolls report is due to be released next Friday and while consensus is for 178,000 jobs, we feel there are upside risks for this print. Therefore this could really influence the Fed and suggest that December is an appropriate time to cut the pace of its bond buying program. This of course is a negative for gold.

Fed speakers on the wires

In upcoming trade, traders will be keen to listen out to a number of Fed officials including Charles Evans (due to speak at 19:45 and again at 00:15), Eric Rosengren (22:30) and Bill Dudley (04:00), while we also get personal income (expected to increase 0.4%) and spending (expected to increase 0.1%). Charles Evans and Bill Dudley have detailed dovish rhetoric of late, so language that could indicate a bias towards tapering in December could push gold closer to our target of $1278.

We lower our stop

Given the current technicals set-up (with the MACD firmly below zero) and the fact gold has started to move in our favour, we lowered our stop to $1364, just above the August downtrend and 50% retracement.

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