As we come to the end of 2015, liquidity will start to get smaller and people will start closing their trades. At the start of this year, expectations of a Fed rate hike meant that the main trade concerning gold was to short the metal and the recent upsurge in the price is a result of these short trades being closed. Gold is currently holding gains of around 3% over the past few days, where uncertainty over the development of US monetary policy is restricting bulls in the market.
In response to the shift in monetary policy in the US and the end of the zero interest rate policy, XAU-USD reached its lowest level since February 2010 following the Fed's announcement. The yellow metal pushed as low as $1047.55, however last week saw a variant of the Hammer candlestick formation on the weekly timeframe. This could potentially highlight a bottom in the market and the end of the recent downward trend. XAU-USD has since recovered to $1076.85 at the time of writing and the daily price action is shown in the chart below.
Given that the Fed has ended quantitative easing and begun raising rates, this could correct stocks downwards and strengthen gold. The Fed's balance sheet size has so far remained unaffected and a more pronounced fall in gold is expected only when the central bank decides to reduce the size of its balance sheet considerably.
The chart above shows that the price action is below the Ichimoku cloud, suggesting bears are still in control of the market but we see the price action is currently testing the most recent sell fractal at $1078.28. A daily close above this level will provide a bullish outlook and the next resistances will be found at $1088.72 and $1098.04/the psychological $1100.00 level.
The price action closed above the conversion line and base line yesterday providing a weak bullish signal. The conversion and base lines should now act as minor support going forward at $1064.56 and $1067.47 respectively for today. A daily close below the conversion line will provide a strong bearish signal. This could then lead to new lows and a Reuters poll of 38 analysts and traders suggested that the average gold price for next year will be $1153, 8% lower than the forecasts for the same period 6 months ago.
