Gold Price Rallies on Weak Consumer Confidence

Weak economic data sparked a rally in gold prices today, with the contract for December settlement on the COMEX division of the NY Mercantile Exchange closing up 0.78% at $1273.6. The advance in gold prices was in reaction to a decline in Consumer Confidence in October. The Conference Board’s Consumer Confidence Index fell to 98.6 in October from a downwardly revised 103.5 (from 104.1) in September. The downturn in October followed two consecutive monthly gains in the Index. The decline in the Index signals that consumers’ outlook for the labor market was less optimistic than in September, a factor that could decrease discretionary spending.

As a result of today’s advance, the December contract is testing the upper boundary of the bear flag formation that has developed since gold prices stabilized earlier this month. A continued move higher over the near term would void the bearish pattern, a development that would lessen the probabilities of another swift downdraft of similar extent to that which occurred in the latter part of September and into October.

On such a development, the next resistance to watch is at the 38.2% Fibonacci retracement of the September-October sell-off at $1283.4, followed by the 50% retracement at $1295.5. The 61.8% retracement corresponds to former support at the lows established in late August and mid-September near the $1306-$1309 zone.

Further upside over the near term could prove difficult, however, as today’s advance has left the contract heavily overbought according to price momentum indicators. Should sellers step in, first support is at Monday’s minor corrective bottom at $1260.1, followed by the lower boundary of the flag formation, which comes in near the $1254 level. Key support is a the $1246.9-$1243.2 zone. A drop below this level would leave the target at the $1,200 level, which was tested with the lows established in February and late May of this year.

Volume on today’s advance was light, calling into question the sustainability of the move. However, an increase in open interest reported for today’s rally would be a constructive sign, signaling more upside is possible.

Regarding economic data which could have an impact on gold prices this week, New Home Sales will be released at 10:00am ET on Wednesday and on Thursday, Jobless Claims, Durable Orders and Pending Home Sales are on the calendar. The key report is advanced Q3 GDP, set for release Friday at 8:30am ET. Consensus estimate is a reading of 2.5%. GDP data will be important for overall market sentiment, especially after generally disappointing figures for the first and second quarter GDP data. Whether the data will have an impact on Fed expectations is questionable, but a solid release would give the FOMC some further backing for a December rate increase.

Several Federal Reserve officials spoke on Monday, with the most notable comments from Chicago Fed President Evans. He was broadly optimistic surrounding the economic outlook. Evans is one of the most dovish regional Fed Presidents and the comments were broadly in line with his recent rhetoric. Evans also did not rule out a rate increase in December. Atlanta Fed President Lockhart spoke today and did not address the outlook for the economy or monetary policy. At present, fed fund futures are calling for a 74% probability of an interest rate increase in December, up from 69.5% last week. The dollar currently trading off the highs of the session at 98.69, down 0.06% from Monday’s N.Y. close.

Reference by economiccalendar.com