Gold prices broke above key resistance levels on Friday, indicating bullish chart signals
On Friday, gold futures ended the trading session at the highest level since March. The yellow metal’s prices rallied more than 2% on the day after U.S. Fed Chief Ben Bernanke said he was open to more quantitative easing to help boost growth in the country’s economy.
Gold futures for October delivery settled at USD1,691.65 a troy ounce on the Comex division of the New York Mercantile Exchange.
On the week, gold futures added 1.25%, the second consecutive weekly gain. In August, gold futures rose 4.5%, the largest monthly gain since January.
Gold gained as much as 15% earlier this year to hit USD1,790 an ounce after the Fed said in January it would keep interest rates near zero until at least late 2014 and indicated that it could introduce a fresh round of asset-purchases.
However, prices have lost almost 6% since late February, as there was no more easing. Concerns over the euro zone’s deepening debt crisis also fueled demand for the precious metal’s hedge, the greenback.
However, official data released past Wednesday showed that the U.S. economy expanded at a seasonally adjusted annual rate of 1.7% in the three months to June, slightly higher than the preliminary estimate of 1.5%, but remained below the 2-2.5% rate required every quarter to hold the unemployment rate steady. Speaking at the Fed’s annual symposium in Jackson Hole, Bernanke said the persistently high rate of unemployment was a “grave concern.” He reiterated that the central bank was ready to provide additional policy accommodation as needed to shore up growth. Bernanke downplayed the risks of quantitative easing and said the program had been effective in providing “meaningful support” to the recovery.
Moves in the gold price in 2012 have largely tracked shifting expectations as to whether the U.S. central bank would pump more money into the financial system.
Market players now look ahead to the outcome of the European Central Bank’s policy meeting on September 6 and the possibility for central bank to introduce fresh measures to help stabilize the euro zone’s sovereign debt markets.
On Thursday, Italy saw borrowing costs ease at an auction of five and 10-year bonds, reflecting renewed optimism that European leaders are making progress in resolving the debt crisis.
In the coming week, gold traders will also focus on the closely-watched report on U.S. non-farm payrolls, which will allow investors to gauge the strength of the faltering labor market and the need for additional easing.
The upcoming Fed’s two-day policy meeting beginning September 12 will also guide market players for direction, amid ongoing speculation over how close the U.S. central bank is to implementing more stimulus measures.
Elsewhere, data released over the weekend showed that China’s Manufacturing Purchasing Managers Index contracted for the first time in nine months in August, falling to 49.2 from 50.1 in July, as new orders slumped in the face of weakening global demand. The disappointing data adds to growing fears over a deeper-than-expected slowdown in the country’s economy.
In addition, the dollar index, which tracks the performance of the U.S. dollar against a basket of six other major currencies, declined 0.6% to settle the week at 81.20, the lowest since May 15.
Gold prices have rallied in recent weeks, climbing nearly 6% since August 15. Expectations of monetary stimulus tend to benefit gold, as the yellow metal is seen as inflation hedge.
From a technical standpoint, gold has further room to march higher after prices broke above key resistance levels on Friday, indicating bullish chart signals.
