Gold Outlook: Prints new all-time high with a bullish appetite

Gold’s price has reached new record highs yesterday at $2353 per ounce, since our last report. Today we are to discuss the main factors which could affect gold’s price fundamentally and conclude the report with a technical analysis of Gold’s daily chart. 

Financial data and the Fed’s meeting minutes

Given the negative, yet currently asymmetric, correlation of the USD with gold’s price, we still see the case for a possible strengthening of the greenback to weigh on gold’s price and vice versa. The release of the US employment report for March came in hotter than expected. The data tended to highlight the resilience of the US employment market and seem to provide some leeway for the Fed to maintain rates high for longer.

Yet the market quickly shook off any effect and it’s characteristic that Gold’s price was allowed to ascend higher for the day. Hence we highlight the release of the Fed’s March meeting minutes on Wednesday. Should the document show that the Fed policymakers are hesitant to start cutting rates it could provide some support for the USD and at the same time also weigh on gold’s price.

Also the release of the US CPI rates for March  on Wednesday may be the next big test for gold’s price and a possible failure of the rates to slow down or even a possible acceleration could add pressure on the Fed to keep rates high for longer and thus provide some support for the USD and weigh on gold’s price.      

US yields on the rise

Also please note the competitive nature of US bonds with gold as safe haven instruments. US bond yields are at higher levels since our last gold report, which should normally be weighing on gold’s price.

The prementioned behavior of US yields can be observed for the two year, five year , seven year and the ten year US bonds, in a sign that the attractiveness of US bonds is falling.

Despite the decoupling of US bond yields and gold’s price, should US yields continue to be on the rise in the coming week, we may see investors’ attention turning away from gold as the precious metal is non-interest bearing thus clipping gold’s gains if not setting its price under pressure.

Geopolitical uncertainty and speculative buying

At the same time we note that geopolitical uncertainty remains high as tensions rise. In the Gaza war we note the expectations for a possible counterstrike of Iran after Israel hit its embassy in Damascus, Syria, killing six persons.

The war in Ukraine seems to have taken a turn in Russia’s  favor as its nature of attrition seems to allow the military superpower to have a better chance of winning it. In the South China Sea, worries for China seem to be rising and tensions between China and the US seem about to escalate further. Also tensions in the LatAm area, may escalate further in the coming week.

Hence we may see uncertainty in the market rising even further, which in turn may provide some support for gold. We also note that the rise of gold’s price may have been instigated by a band wagon effect with speculative buying being on the rise thus providing support for the precious metal’s price like a self-fulfilling prophecy.

Ramp up of central bank gold buying   

Also central banks are reported to continue keeping gold purchases at high levels hence central bank gold buying is emerging as a key driver of gold’s price. Characteristically China’s central bank (PBoC) added gold to its reserves for the 17th month in a row in March according to Wall Street Journal.

Also other central banks are reported to increase their gold reserves and should that tendency be maintained we may see gold’s price getting further support

Gold: Technical Analysis

XAUUSD Daily Chart

• Support: 2353 (S1), 2303 (S2), 2250 (S3)
• Resistance: 2400 (R1), 2450 (R2), 2500 (R3)

Gold’s price reached new record highs yesterday at $2353 per ounce, yet today’s price action seems to have broken above yesterday’s high turning it into a support level (S1). Hence we maintain our bullish outlook for the precious metal’s price, as it seems to maintain its movement within an upward channel, with the lower boundary serving also as an upward trendline.  

We also note that the 20 moving average (MA) which is also the median of the Bollinger bands, the 100 MA (Green line) and 200 MA (Orange line) are all pointing upwards also implying a continuance of the bullish outlook. Yet we note that the RSI indicator remains above the reading of 70, implying a strong bullish market sentiment for the shiny metal yet at the same time may also imply that gold’s price is in overbought territory and may be ripe for a  correction lower.

Similar signals are coming from the fact that the price action is flirting with the upper Bollinger band. Hence we tend to issue also a warning for a possible correction lower. For the bullish outlook to be maintained though, gold’s price will have to form new record highs, which implies that some distance has to be placed between gold’s price and the 2353 (S1) support line and  we set as the next possible target for the bulls at the 2400 (R1) resistance level.

For a bearish outlook we would require the precious metal’s price to reverse direction, break the 2303 (S2) support line and the prementioned upward trendline in a first signal that the upward motion has been interrupted and continue lower to aim or even reach the 2250 (S3) support base.     

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