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Fundamental Forecast for Gold: Bearish
- Gold Probes Lower Levels…Slowly
- Gold and Silver Capitalize as US Dollar Declines on Waning Haven Demand
- Gold-Forex Correlations Seen Amidst Long Term Shift, Risk Tracking Still High
Gold fell back from a weekly high of 1,658 to mark a lower top in April and the precious metal looks poised to weaken further ahead of May as the shift in the Fed’s policy outlook dampens demand for the bullion. Indeed, the Federal Open Market Committee interest rate decision highlights the biggest event risk for the following week, and the fresh batch of central bank rhetoric should further diminish the appeal of gold as the board continues to soften its dovish tone for monetary policy.
Although the FOMC is widely expected to maintain its current policy in April, the central bank’s interest rate projection along with the updated forecast for growth and inflation could weigh on the bullion should the developments dampen expectations for additional monetary support. In light of the recent comments by Fed officials, it seems as though the committee will continue to move away from its easing cycle as the recovery gets on a more sustainable path. Cleveland Fed President Sandra Pianalto, who serves as a voting member this year, struck and improved outlook for the world’s largest economy as it displays ‘forward momentum,’ and sees the central bank taking a balanced approach in its exit strategy amid the ongoing slack in private sector activity. With high energy prices raising the risk for inflation, the FOMC may shift gears later this year, and we may see the central bank lay out a tentative schedule to start normalizing monetary policy in the second-half of 2012 in order to balance the long-term risks surrounding the region.
As gold marks another failed run at the 100-Day SMA (1,677), we should see the downward trending channel from March continue to take shape, and the bullion looks poised to fall back towards the $1,600 figure as it sets a lower high in April. At the same time, the 50 and 200 day moving averages reinforce a bearish outlook for the precious metal as the 50-Day SMA (1,688) crosses below the 200-Day SMA (1.696), and we anticipate to see lower gold prices throughout 2012 as the Fed brings its easing cycle to an end. – DS