Sideways Trading in Gold Continues – Brace for a Breakout!
Arslan Butt • 4 min read
During Wednesday’s Asian trading hours, the price of the safe-haven metal extended its positive performance of the previous-session, drawing further bids above the $1,780 level. However, the prevalent buying bias surrounding the yellow metal prices was mainly boosted by the ever-increasing fears of the Delta Plus variant of the coronavirus (COVID-19) and worries over the fresh US-China tussles, which are probing the market optimism and contributing to the gains in the precious metal.
Moreover, the upticks in the GOLD prices were further bolstered after US Federal Reserve Chairman Jerome Powell confirmed that interest rates would not rise too quickly, based only on the fear of coming inflation. The fresh dovish view of the Fed acted as tailwind for GOLD. This turned out to be one of the key factors behind a sharp uptick in the prices of the yellow metal. Apart from this, the reason for the bullish gold prices could also be tied to the sour relationship between Australia and China, which is exerting downside pressure on the market trading sentiment, and putting a safe-haven bid under gold. In contrast to this, the overall upbeat market sentiment, backed by a combination of factors, became one of the key factors that kept a lid on any additional gains in the safe-haven-metal.
Apart from the US, the Bank of Japan (BOJ) released the minutes of its April policy meeting earlier in the day. They revealed that the members of the Bank of Japan agreed that the massive stimulus measures implemented by some countries could help strengthen the speed of recovery in the Japanese and global economies. However, the prevalent buying bias surrounding the market sentiment was seen as one of the key factors that limited the losses in gold prices.
Even though the Fed has stepped back from its hawkish policy, the broad-based US dollar managed to extend its previous bullish bias, remaining well supported on the day. It should be noted that US Federal Reserve officials, including Chair Jerome Powell, confirmed that tighter monetary policy was still some way off. Furthermore, Powell and New York Fed President John Williams, have recently warned that economic recovery in the US requires more time before any tapering of stimulus and higher borrowing costs are appropriate. These comments pushed the US dollar lower, making it give up nearly a third of the heavy gains it had posted since last Wednesday, when the Fed surprised markets by indicating much earlier rate hikes than investors had previously expected. Meanwhile, backed by multiple factors, the overall positive mood of the market failed to undermine the safe-haven US dollar. Thus, the bullish sentiment surrounding the greenback was seen as a key factor that kept the gains in gold in check, due to the inverse relationship between the precious metal and the greenback.
On a different page, the ever-increasing fears of the Delta Plus coronavirus variant and concerns over fresh Sino-US tussles, keep challenging the market risk-on mood, and this was seen as another key factor that gave the gold prices a boost. Moreover, the problems between the US and China picked up further pace after Beijing failed to import the agreed volume of American goods. In the meantime, the recent comments by China’s military, relating to the US warships transiting the Taiwan Straits, put further pressure on the US-China matter, providing extra support to the bullion prices.
Moving on, the market traders will keep their eyes on the June readings of the preliminary PMIs and FedSpeak, which may offer fresh direction for the market sentiment. Besides this, coronavirus headlines and trade/political jitters will also keep the markets on their toes.
Daily Support and Resistance
Pivot Point: 1,774.13
R3 1,846.89On the technical side, GOLD is trading at around 1,783, and gaining support at 1,765. A bearish breakout at 1,765 could extend the selling trend until the next support levels of 1,745 and 1,730. It seems the trading volume will remain limited until the release of the US manufacturing and services PMI figures; therefore, we can expect choppy sessions within the trading range between 1,792 and 1,765. However, a breakout from this range might determine further trends in the market. The MACD and RSI both support a selling trend in GOLD , while the 50 EMA remains at 1,832. Consider selling below 1,774 and buying above the same level. Good luck!