Weekly Outlook: Precious metals poised for more rallies despite weak fundamentals

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Weekly Outlook: Precious metals poised for more rallies despite weak fundamentals
Weekly Outlook: Precious metals poised for more rallies despite weak fundamentals

As the Fed is Set to Maintain Stimulus, Gold Futures Advance to the Highest Level in a Month

Technical analysis suggests more upside movement in the prices of precious metals despite a manufacturing slowdown in China. The Asian nation is the biggest consumer of gold, silver, palladium and platinum. US manufacturing and labor reports are due this week that should determine the fate of the precious metals.

Technical Analysis

As of this writing, gold is heading towards $1373.00 an ounce which a crucial resistance for two reasons:

1) It is 76.4% fib level of last major move

2) It is the first notable resistance after the swing high of the previous wave

If the yellow metal successfully prints a Higher High (HH) at $1373, it will turn the long-term bias into bullish and vice versa. Technically, gold is likely to extend upside movement up to $1373 in near future.

Gold daily chart

It is however pertinent that both Relative Strength Index (RSI) and Commodity Channel Index (CCI) have entered into overbought territory which means some correction might be in play before further rallies. Similarly, silver is expected to extend upside movement up to $23.54 an ounce which is the first major resistance above the swing high of the previous upward wave.

platinum

Likewise, spot platinum is moving towards $1495 an ounce. The most expensive precious metal is expected to face tough resistance around $1495-$1500 handle. On the other hand, spot palladium is holding a range for quite some time now. The white metal, which is currently being traded around $745 an ounce, is expected to extend gain up to $760 this week, failing to which will open doors for steep losses towards $680.

China Slowdown

A report by China’s Federation of Logistics and Purchasing (CFLP) on Saturday revealed that the manufacturing activity in world’s second largest economy declined during February. NBS manufacturing PMI ticked down to 50.2 last month from 50.5 in a month before.

Moreover, a separate report by HSBC Holdings said that its PMI also showed a manufacturing slowdown in China for a second month in a row. HSBC manufacturing PMI reduced to 48.5 points in previous month, a reading below 50.0 shows contraction in manufacturing activity. Some analysts, however, linked this slowdown to prolonged lunar vacations in the Asian nation. Probably, that was the reason why the precious metals shrugged off China’s PMI reports.

US Manufacturing PMI

Today the Institute of Supply Management (ISM) and Markit Economics (ME) are scheduled to release US manufacturing PMIs. According to the forecast, both PMIs increased during February. Since the precious metals are negatively correlated to US Dollar (USD), so better than expected actual readings will be bearish for bullion prices and vice versa.

US Job Data

On Friday, the US labor department will release non-farm payrolls and unemployment rate figures for February. Analysts have predicted an increase in non-farm payrolls and steady jobless rate reading for last month. The labor market data will be of great significance because later, on March 19, Federal Open Market Committee (FOMC) is due to meet at monetary policy meeting in which the policymakers will analyze January and February job reports to make any decision regarding the pace of monthly asset purchase program and benchmark interest rate.

Conclusion

Technically, the precious metals should continue the upward movement during the course of the current week. The metals are expected to hit the above mentioned resistance levels ahead of US job data on Friday.

To contact the writer of this story: Usman Ahmed at usman@forexminute.com