Weekly Market Analysis / 18 - 22 October 2021

First estimate of US Q3 GDP growth stands out in a busy week - bears and bulls fight over $1,800

Following the sharp drop witnessed on Friday, gold started the new week in a calm manner but didn’t have a hard time capitalizing on the selling pressure surrounding the greenback. After posting impressive gains on Wednesday, gold stayed in a consolidation phase on Thursday and continued to edge higher ahead of the weekend. By surging beyond $1,800 on Friday, gold attracted buyers but erased a large part of its daily advance in a quick manner in the late American session to end the week in the positive territory above $1,790.

  • Gold shot higher on Friday but lost its traction. 

  • Neither sellers nor buyers have control of the critical $1,800 level.

  • First estimate of US Q3 GDP growth stands out in a busy week.

What Happened Last Week

  1. Disappointing growth data from China caused the market mood to sour at the start of the week and provided a boost to the dollar. However, the upbeat earnings figures from large US banks on Monday helped Wall Street’s main indexes gain traction and allowed risk flows to dominate the financial markets, limiting gold losses. 

  2. In the absence of high-tier macroeconomic data releases, risk perception remained the primary driver of financial markets on Tuesday. Although the gold climbed above $1,780 on broad-based USD weakness – rising US Treasury bond yields forced the pair to pare its gains. 

  3. As the rally in US stocks picked up steam mid-week, gold gathered bullish momentum and climbed to fresh weekly highs above $1,790. The data from the US on Thursday, showed that the weekly Initial Jobless Claims fell to the lowest level since March 2020 at 290,000.

  4. Assisted by the sharp correction in the US T-bond yields and the renewed dollar weakness on Friday, gold broke above $1,800 and touched its highest level since early September at $1,814.70.

News to Follow

  1. September New Home Sales and the Conference Board’s October Consumer Confidence Index data will be featured in the US economic docket on Tuesday.

  2. On Thursday, the European Central Bank (ECB) will announce its Interest Rate Decision and release the Monetary Policy Decision Statement. Throughout last week, ECB officials reiterated that the inflation spike in the euro area was expected to be temporary and noted that they would maintain the expansionary policy even after the Pandemic Emergency Purchase Programme (PEPP) ends in March.

  3. More importantly, the US Bureau of Economic Analysis will release its first estimate of third-quarter Gross Domestic Product (GDP) growth. On a yearly basis, the GDP is expected to expand by 3.2% following the 6.7% growth recorded in the second quarter.

  4. Finally, the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, will be the last data release of the week to watch on Friday.

Short-Term Outlook

  • •    The initial hurdle is located at $1,795 ahead of $1,820.

  • •    below $1,780 could open the door for additional losses toward $1,770 below $1,750.