Gold overextended, Thursday brings downside risks from data, Fed speakers – Forex.com’s Scutt

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(Kitco News) –
Gold is approaching record highs heading into the traditionally strong holiday period, but with prices already completing a two-month rally, its upside may be capped in the near term, according to David Scutt, Market Analyst at Forex.com.

“Gold has been in beast-mode since October 5, surging initially on geopolitical tensions in the Middle East before kicking again on sharp falls in US bond yields and US dollar, sending the price surging towards record highs,” he said. “Over $130 bucks it’s put on over this period, leaving it less than $40 away from the mark.”

Scutt noted that the precious metal is also entering one of its most dependable positive months, as it finished the last six Decembers with average gains of nearly 4%. “To top things off, we’re about to get blasted by oodles of headlines about a golden cross for gold on the daily charts, most of them no doubt using clichés,” he said.

The analyst said that gold appears to be a little stretched. “Sitting just below levels where rallies have faltered in each of the past three years, and with RSI moving into overbought territory, it’s not hard to see the risk of some form of reversal in the near-term,” he said.

Scutt noted that Thursday will see the publication of inflation reports from Europe and the U.S., “the latter accompanied by volatile jobless claims data,” as well as several central bank speakers, so “a lot must go right for gold to keep this brisk upside momentum going.”

He said any data or comments that are negative for gold prices could set off a round of profit-taking. “The US dollar index has already fallen the most in a year in November, much of it in the past few days, while 10-year inflation-adjusted US bond yields have skidded 15 basis points this week alone, bordering on disorderly,” Scutt said. “As gold’s main drivers, if they were to reverse it would be difficult for bullion to maintain these levels.”

“Gold has already tested $2048 today, a level where it was capped on all but one occasion earlier this year,” he said. “Should it not be able to get a foothold above here later in the session, it could provide an opportunity for shorts to target a modest reversal with a stop loss placed above the level. Minor uptrend resistance located around $2015 would be the initial target with support around $2005 below that.”

Scutt said that barring “an abrupt change in the macroeconomic environment,” a pullback below the $2,005 level is unlikely.

Spot gold is up 0.16% on the session, last trading at $2,044.22 at the time of writing.