Gold Price Forecast – Double Top Breakout, Bullish Signal In Play!

During Tuesday’s Asian trading hours, the safe-haven metal price succeeded in extending its heavy run-up of the previous day, remaining unstoppable while hitting fresh five-month highs around the $1,915 level on the day. However, the prevalent bullish bias was mainly promoted by ever-increasing tensions between China and Western friends, including Australia and New Zealand, which is putting some downside pressure on the global equity market and contributing to the safe-haven gold gains.

Moreover, the declines in the global equity market were further bolstered by the latest uncertainties over the next move by the US Federal Reserve (Fed), amid a jump in inflation fears. The reason for the bullish bias could be attributed to the weaker US dollar, which was seen as one of the key factors that provided the non-yielding yellow metal with some support, as the bearish USD tends to make it cheaper for holders of other currencies to purchase the yellow-metal. The greenback was under pressure from the latest worries over the upcoming US Federal Reserve (Fed) action, amid increased fears of inflation, which did little to shift expectations of a hike in the Fed rate. This was evident from a fresh leg down in the US Treasury bond yields, which was seen as another factor that extended some support to the non-yielding precious metal, GOLD .

Conversely, the optimism over possible coronavirus vaccines and reduced coronavirus (COVID-19) woes in Asia kept questioning the risk-off market sentiment. This was seen as one of the key factors that kept a lid on any additional rise in gold prices. At the time of writing, the yellow metal prices were trading at 1,910.61 and consolidating in the range between 1,906.24 and 1,914.50. Despite the latest hopes of US President Joe Biden’s $1.7 trillion infrastructure spending plan, the sentiment surrounding the global markets failed to extend the positive performance of the previous day. It started to flash red on the day, as the ongoing worries over the upcoming move by the US Federal Reserve (Fed), amid a rise in inflation fears, kept weighing on the market sentiment. In addition to this, the latest tensions between China and Western friends, including Australia and New Zealand, also exerted some downside pressure on the market sentiment. Meanwhile, the continuously intensifying tussle between Israel and Palestine also played a major role in undermining the market trading sentiment. However, the bearish appearance of the US stock futures tends to highlight the risk-off sentiment, which in turn benefits the safe-haven metal, GOLD .

Despite the risk-off market sentiment, the US dollar failed to gain any positive traction, dropping by 0.21% to 89.808 on the day, amid the prospect of the expected US financial aid package and speculations that the Fed will keep interest rates lower for a longer period. It is worth recalling that the previously released US data showed that the core PCE Price Index – the Fed’s preferred inflation gauge – rose by 3.1% YoY in April. These figures were significantly above the central bank’s suggested 2% target, and validated the higher inflation narrative. Market traders now seem aligned with the Fed’s firmly dovish view that the latest spike in prices should prove temporary. Therefore, the latest inflation fears did little to shift expectations of a hike in Fed rates. This was evident from the latest declines in the US Treasury bond yields, which was seen as one of the key factors that kept the US dollar under pressure. Thus, the weaker US dollar tends to benefit dollar-denominated commodities, including GOLD.

On the contrary, the steady vaccination drive in the West and the decrease in the number of coronavirus (COVID-19) cases in Asia keeps questioning the market’s risk-off sentiment. This was seen as one of the key factors that kept a lid on any additional gains in the yellow metal prices. Meanwhile, the gains were also capped by the upbeat key economic data from China and Japan, which raised hopes for global economic recovery. On the data front, China’s Caixin Manufacturing Purchasing Managers Index (PMI) for May was 52.1, with both forecasts and April’s reading at 51.9. The Caixin figure was above the manufacturing PMI released by the National Bureau of Statistics on Monday, which came in at 51. In Japan, the Manufacturing PMI grew to 53.0 in May, which was slightly higher than April’s reading of 52.5. However, growth in factory activity in Japan was slower than for the previous month, possibly due to a reduction in output and new orders.

Given the lack of key data, the yellow-metal traders will keep their eyes on Friday’s US Nonfarm Payrolls (NFP). Furthermore, the Institute of Supply Management Manufacturing PMI, which is due to be released later in the day, will also be key to watch, along with the updates about the US stimulus package. At the same time, the usual risk catalysts, like geopolitics and the virus woes, will not lose their importance.