Update: Gold (XAU/USD) has finally cracked the 200-DMA barrier at $1846 to clinch fresh three-month tops at $1853, starting out a fresh week this Monday. The gold price extends the bullish momentum into the third straight session, shrugging off the latest bounce in the US dollar across its main competitors. Concerns over uneven economic recovery in China help underpin the sentiment around gold.
The recent strength in the gold price can be mainly attributed to the resurgent dovish Fed expectations, in light of the downbeat US Retail Sales data released last Friday. Dismal US data tamed rising inflation fears, weighing heavily on the Treasury yields, aiding the non-yielding gold. Gold traders now look forward to the FOMC minutes due for release on Wednesday for fresh direction. In the meantime, the broader market sentiment and Fedspeak will continue to influence gold prices.
Update: Gold (XAU/USD) defies the early Asian pullback from February high, recently taking the bids to $1,848, up 0.18% intraday, during Monday. In doing so, the gold buyers benefit from the US dollar pullback while also cheering the risk-on mood portrayed on Friday.
The US dollar index (DXY) jumped 10 pips before easing to $90.39 of late. The greenback gauge might have initially cheered a lack of major data/events and the geopolitical unrest in the Middle East. However, the mixed plays between the US reflation concerns and the Fed’s defense to easy money policy seem to propel the gold prices.
Moving on, China’s data dump will be the key as strong numbers from the world’s largest industrial player could renew the inflation woes and tame the gold buyers. Though, US catalysts and the Fedspeak gain a higher weight than China data when it comes to gold.
Gold bulls keep the reins around $1,848 as traders extend Friday’s risk-on sentiment amid the early Monday morning in Asia. Although recent headlines from China and the United Nations (UN) test the market optimism, receding fears of reflation back the gold buyers amid a quiet start to the key week.
Fed’s dilemma seems priced in…
As the economies in the West rebound, inflation concerns jump back to the table as central banks and governments around the globe have pumped the system with money during the pandemic. The US Federal Reserve (Fed) has a more challenging task to defend the easy money policy after the Bank of Canada (BOC) and Bank of England (BOE) altered their bond purchases and renewed tapering talks. Also on the negative side could be expectations of further stimulus from US President Joe Biden’s table.
Even so, the market players seem to have already prepared for the Fed’s play down as the US dollar index (DXY) has been on a back foot since late March, which in turn backs the gold prices.
The greenback gauge got another jab on Friday when the US Retail Sales and Michigan Consumer Sentiment Index figures, for April and May respectively, slipped below forecast, easing the way for the Fed policymakers seeking “multiple data” to confirm the policy adjustments.
The upbeat sentiment ignored the geopolitical tussles between Israel and Palestine that recently pushed the United Nations (UN) for an emergency meeting. However, nothing important came out of the meeting, due to the US as per China. Also challenging the mood could be the headlines suggesting that China’s ban on Aussie coal import could extend into 2022.
While the S&P 500 Futures look for more push towards the north, eyeing China data dump for April, gold buyers remain hopeful as recent data from the US favor the Fed.
Against this backdrop, the Australia and New Zealand Banking Group (ANZ) said, “Whilst we give weight to re-opening and noise arguments, the evolution of core services inflation merits very close monitoring, as it makes up 60% of the US CPI. Long-term inflation expectations are also moving up, as shown in the consumer survey this week. And central banks are also increasingly concerned about frothy asset prices, as evidenced by the April ECB minutes last week. We have recently seen both the BoE and BoC start to gently dial back weekly bond purchases. Inevitably, policymakers are increasingly debating the merits versus risks of monetary policy ‘super-max’.”
Looking forward, China’s April month data dump could help the gold prices extend recent upside, should the figures cross downbeat forecasts. However, gold’s major upside may await the Fedspeak scheduled during the US session.
Gold battles 200-day SMA for the first time since early February amid stronger oscillators than those dragged the quote back in the last attempt. Also favoring the gold bulls could be near-term support lines as well as the risk-on mood.
However, a clear break above the immediate $1,846-47 hurdle, comprising the key SMA, becomes necessary for the bulls before targeting the late January tops surrounding $1,875.
During the run-up, February 10 swing high near $1,855, the previous attempt to cross the 200-day SMA, could act as an intermediate halt.
Meanwhile, a two-week-old support line near $1,820 can keep the gold sellers away amid a fresh pullback, if any.
Also acting as a downside filter is an upward sloping trend line from March 31, around the $1,800 threshold.
Gold daily chart