Gold continued to gain ground against the American dollar during Friday's session and closed the week at $1276.68 an ounce, the highest level since May 28. Soft economic data out of the United States and the upsurge of violence in Iraq helped gold prices gain roughly 2% on the week. Last week’s retail sales, consumer confidence and PPI numbers were a bit concerning for people expecting stronger growth. Although weaker than anticipated data curbed speculation of a hawkish stance from the U.S. Federal Reserve, my guess is policy makers will shrink the ongoing asset buying program again maintaining the schedule they have. Fed Chair Janet Yellen is going to hold a press conference after the Federal Open Market Committee’s June 17-18 meeting, when Fed officials will next update their forecasts for the growth, unemployment and inflation.
In the mean time, the developments in Iraq will continue influencing the market. Geopolitical tensions usually have an impact on gold because uncertainty pushes down stocks on major world markets and drives up buying of safe-haven gold. In March, gold prices hit $1392.04 an ounce because of growing tensions between Ukraine and Russia (and the sanctions announced by the U.S. and EU.). With that in mind, I think gold investors will keep a wary eye on the developments in Iraq to see if things escalate or simmer down. Recent media reports show that militants, known as ISIL, are marching on Baghdad after seizing several cities in the country. However, at this point I advise investors to be cautious. First of all, keep in mind that gold prices fell all the way back to the $1240 after the Ukrainian situation stabilized. That means if the fear factor disappears and stocks start to rally, gold could sell off quickly - returning towards $1213 an ounce.
Another thing to pay attention is the gold market’s trading range over the past months. Gold prices are trapped roughly between the $1180 and $1430 levels for almost thirteen months. Price pattern on the gold chart suggests that sentiment toward gold has shifted (compared to the last couple of years) and become more bearish. Before breaking below the $1532 support level which triggered a huge sell-off afterwards and eroded investors’ confidence in gold, the market remained in a massive consolidation area for more than 80 weeks. As a result, now investors want to see if the precious metal can hold on to gains before they put larger bets. There is a descending triangle forming on the weekly chart and I think it will contain prices for the next several weeks. Of course, the precious metal’s fate will also depend how the Federal Reserve plays its cards. If the bulls break through $1286, it is technically possible to see a bullish continuation targeting the $1297 and $1312 levels. Only a sustained break above $1312 could give the bulls enough power to challenge the $1352 hurdle. To the down side, there are interim supports at $1260 and $1248. Breaking below the key support at $1240 would increase the downward pressure and send prices back to $1227 and then $1213.