With gold’s price rallying to new record high levels since last Wednesday, interest in the precious metal has been renewed. On a fundamental level we note the following:
- On a fundamental level over the past few days we tend to view a revitalization of the negative correlation of the USD Index with gold’s price. Should it become clearer in the coming days, we may see gold’s price being supported should the USD drop further.
- On the flip side the rise of US yields over the past week, should have made the alternative of US bonds as more attractive, shifting investments from the shiny metals to US bonds, yet gold traders remained unfazed as the rise of US yields may have been driven by the market worries for a recession in the US economy.
- US President Trump’s trade wars continue to create uncertainty in the markets, thus driving safe haven inflows for the precious metal. We also note the announcement by the US President that tariffs are to be announced on semiconductors within the week. Hence, should we see market worries for the trade war intensifying in the coming days we may see increased inflows and support for gold’s price.
- On a monetary level, should Fed policymakers reiterate in the coming days, their doubts for extensive rate cuts, we may see gold’s price weakening while any enhancement of the market sentiment for more rate cuts to come by the bank could support gold’s price.
- No major financial releases are scheduled for the week from the US, hence we expect fundamentals to lead the market’s view regarding gold.
Technical analysis
On a technical level, we highlight that gold’s price recovered fully from its drop on the 3rd to the 7th of the month, mentioned in last week’s report. Gold’s price not only recovered by proceeded to reach new record high levels by breaking the 3150 (S1) resistance line, now turned to support and continued to reach the 3250 (R1) resistance hurdle, a level that was identified in last week’s report also. Given that gold’s price action has risen, reached new record highs and been able to form new, higher troughs and peaks respecting the upward trendline guiding it since the end of the past year we maintain our bullish outlook.
Yet we also issue a warning that a correction lower for gold’s price is quite possible, given that the RSI indicator has reached the reading of 70, implying that the precious metal’s price may be at overbought levels while similar signals come from the fact that the price action is flirting with the upper Bollinger Band. For the bulls to maintain control, gold’s price would have to once again enter unchartered territories, this time by breaking the 3250 (R1) resistance line that also marks the current record high level and set as the next possible target for gold bulls the 3350 (R2) resistance level.
For a bearish outlook, which we currently regard as remote at the current stage, we would require gold’s price action to break consecutively the 3150 (S1) and the 3050 (S2) support lines continue to break also the upward trendline incepted since the 31st of December, in a first clear signal that the upward motion has been interrupted, and continue to also break the 2955 (S3) support level allowing it to form a lower trough.
XAU/USD Daily Chart
- Support: 3150 (S1), 3050 (S2), 2955 (S3)
- Resistance: 3250 (R1), 3350 (R2), 3450 (R3)
