(Kitco News) Gold could be one step away from another rally as it exceeds key resistance levels and is heading for $ 1,800 an ounce, analysts say.
The precious metal ends its second consecutive week of gains, after a positive start to Q2, amid a weaker US dollar and the withdrawal of US Treasury yields for 10 years. At the time of writing, June Comex gold futures were trading at $ 1,779.90, up 2% from the week.
“The gold movement was predominantly driven by the US dollar, which continues to decline. The dollar index is at 91.5 right now. Very important to note, we have seen a fairly significant decline compared to the 10-year yield and over All of this has driven gold to rise, “TD Securities’ chief global strategy chief Bart Melek told Kitco News.
The moment is definitely on the right side right now, senior RJO Futures broker Daniel Pavilonis told Kitco News for the goods.
“If we can close over $ 1,815 next week, we have a good shot at a very important move back to peak. Eventually, let’s continue the secular bullfighting gold market,” Pavilonis said. “The markets calmed down a bit. We had so much pressure from the Federal Reserve and the European Central Bank, trying to ease the tensions of yields and it worked. And what they did behind the scenes is also functional, giving the metals deferral.”
The weaker US dollar has finally allowed gold out of its narrow trading range, said FXTM market analyst Han Tan. “The support from the green dollar was eroded by the 10-year Treasury yields which were below the psychologically important value of 1.60%, which in turn allowed spot gold to exceed its simple moving average 50 days for the first time since early February, “Tan said.
The coming weeks also mark the interruption of the Federal Reserve’s media outbreak ahead of the April 28 monetary policy announcement. ING said no other Fed speaker could mean a weaker US dollar that is beneficial for gold. “A quieter week for the US and Fed data in the interruption period could favor the continuation of benign market trends and a slightly weaker USD,” ING strategists wrote.
There is no significant resistance to gold up to $ 1,800, said Charlie Nedoss, senior market strategist at LaSalle Futures Group. “USD 1,809.40 is the 100-day moving average and we will reach it in time.”
It was essential that the precious metal did not close below $ 1,736.40 – this week’s lows, Nedoss added. “A lot of it was based on data,” he said.
The market is also recalibrating after setting too much inflation too early, Melek explained.
“Inflation expectations have been a little too high and have fallen. This suggests that the market has recalibrated its outlook. We have seen too much growth along the yield curve in anticipation of higher inflation, and now we are also concerned “Global economies play a role because some countries that do not have a robust vaccine implementation plan could have a negative impact on the global recovery,” he said.
Meanwhile, the algorithmic community has been without gold, but traders need to watch the $ 1,808 level for a change in this trend, Melek noted. “Prices north of $ 1,800 would catalyze the coverage of a significant portion of current CTA positions.”
However, it is too early to be too excited about the future action of the gold price, Melek warned. “We have exceeded the 50-day moving average, the next level here is around $ 1,800 north.”
Before moving much higher, there must be confirmation that the increase in US Treasury yields over 10 years is contained.
“The big battle here will be between the Fed and the market. The Fed says any inflation is likely to be transient due to base effects, while the market may start to worry that it is behind the curve. We are still waiting for the Fed’s statement that we he says they will stay put, “Melek said.
Data to follow
European Central Bank (ECB) and Bank of Canada (BoC) interest rate announcements are on the radar next week. They come just one week before the April 27-28 Federal Reserve’s monetary policy meeting.
“The ECB will consider any temporary rise in global inflation and will not tolerate significant movements in bond yields unless they are the result of improved growth prospects. The bank’s decision to charge asset purchases in advance at the last meeting was intended to limit the increase in yields, which followed the movements of the US Treasury “, said ING strategists.
Markets will also follow the latest data on jobless claims in the US and existing home sales, both of which expire on Thursday, as well as US manufacturing PMI sales and new home sales.
As macro data becomes quieter than usual next week, analysts are also closely monitoring the progress of US President Joe Biden’s infrastructure plan.
“There are few signs of bi-partisanship in the $ 2 billion package and it looks like Democrats will push it through the reconciliation process to avoid the need for 60 senators to agree to put it to a vote. However, no all Democrats are fully on board, which means we could still see changes to the package, especially on the tax side, “said ING’s chief international economist James Knightley.
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