(Kitco News) According to analysts, gold could be on the brink of a new rally as it reaches the highest resistance levels and moves towards $ 1800 per ounce.
The precious metal is booming its second consecutive week’s profit after a positive start in the second quarter amid a weaker US dollar and the pullback of ten-year US treasury yields. At the time of writing, Gold Comex futures are trading at $ 1,779.90 in June, up 2% from the week.
“The move in gold was mainly driven by the US dollar, which is still declining. The dollar index is currently at 91.5. Very important to note, we have seen a fairly significant decline in the 10-year yield. and then All this turned gold on its head, “Bart Melek, head of TD Securities’ global strategy, told Kitco News.
The momentum is definitely on the gold side now, Daniel Pavilonis, senior trading broker at RJO Futures, told Kitco News.
“If we can close above $ 1,815 next week, we have a good chance of making another very important move to the highs. Possibly gold’s secular bull market will continue,” Pavilonis said. “The markets have calmed down a bit. We’ve had so much pressure from the Federal Reserve and the European Central Bank to try to ease yields, and it has worked. And what they did behind the scenes is working, too. metals give a little respite. ‘
The weaker U.S. dollar has finally allowed gold to retire from its tight trading range, Han Tan said. “The support of the greenback has eroded with the yields of ten years Treasury yields moving below the psychologically important 1.60% point, which in turn caused the spotlight to break above its for the first time since early February. simple moving average of 50 days, “said Tan. .
Next weeks are also the darkening period of the Federal Reserve before its announcement of monetary policy on April 28th. ING said that no additional Fed speakers could mean a weaker US dollar, which is beneficial for gold. “A calmer week for US data and the Fed in a period of eclipse could favor a continuation of benign market trends and a slightly weaker dollar,” the ING strategists wrote.
There is no significant resistance to gold before the $ 1,800, said LaSalle Futures Group senior market strategist Charlie Nedoss. “The $ 1,809.40 is the 100-day moving average, and over time we’ll pick it up.”
That was the key to the precious metal not closing below $ 1,736.40 – this week’s lows, Nedoss adds. “A lot of this is data-based,” he said.
The market is also recalibrating after too much inflation was priced in too early, Melek explained.
“Inflation expectations were a bit too rich, and it has slowed down. This indicates that the market has recalibrated its view. We are seeing too much of an increase in the rate of return in anticipation of higher inflation, and now we are comparing it. “Global economic concerns also play a role, as some countries that do not have a robust vaccination system can have a negative impact on the global recovery,” he said.
Meanwhile, the algorithmic community has little shortage of gold, but traders need to watch the $ 1,808 level for a change in the trend, Melek noted. “Prices just north of $ 1,800 will catalyze the coverage of a significant portion of the current short positions in the CTA.”
However, it is too early to get too excited when it comes to the future price action of gold, Melek warned. “We passed the 50-day moving average, the next level here is about north of $ 1,800.”
Before moving much higher, it should be confirmed that the rise in US ten-year treasury yields is limited.
“The big battle here will be between the Fed and the market. The Fed says that any inflation is likely to be preliminary, while the market may start to worry that they are behind the curve. We are still waiting for the Fed statement to to tell us that they will stay put, “Melek said.
Data to look at
The interest rate announcements of the European Central Bank (ECB) and the Bank of Canada (BoC) are on the radar next week. They come just one week before the Federal Reserve’s monetary policy meeting on April 27-28.
“The ECB will examine temporary increases in headline inflation and will not tolerate significant movements in bond yields unless it is the result of improved growth prospects. The bank’s decision to postpone the purchase of assets at the previous meeting, was intended to limit the rise in yields moving in the U.S. treasury, “ING strategists said.
The markets will also monitor the latest U.S. data on jobless claims and existing home sales, which are both available on Thursday, as well as the PMI for U.S. production in the U.S. and new home sales.
As macro data will be 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 bipartisanship on the $ 2 ton package, and it looks like the Democrats are going to push it through the reconciliation process to prevent 60 senators from agreeing to put it to the vote. Nevertheless, not all. Democrats are fully on board, which means we can still see changes to the package, especially around the tax area, “said James’s International Economist James Knightley.
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