Edging Higher as USD Falls, Traders Eye Powell Speech

GOLD PRICE OUTLOOK:

• Gold prices coiled up slightly as the US Dollar erased gains, Treasury yields fell during APAC hours
• Traders await Jerome Powell’s speech at an IMF seminar for his take on global growth
• The world’s largest gold ETF suffered outflow, with holdings falling to the lowest since May 2020

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Gold prices erased early losses and traded modestly higher during Thursday’s APAC midday session after falling 0.41% a day ago. Selling pressure on the precious metal alleviated as the DXY US Dollar index eased gains and the 10-year Treasury yield fell despite improved risk appetite.

Last night’s FOMC meeting minutes underscored the Fed’s dovish stance in the wake of transitory inflation pressure. The central bank committed to maintain the current accommodative policy until the economy shows “substantial further progress” towards its full employment and inflation targets before considering tapering. The Fed intended to communicate well in advance of the time when progress could be judged “substantial enough to warrant a change in the pace of purchases”.

Asia-Pacific investors digested the Fed’s dovish rhetoric and embraced a ‘risk-on’ session, with equity indices marching higher in most of the regional markets. A reduced appetite for safety sent the US Dollar lower, buoying gold and platinum prices. Looking ahead, traders are waiting for a speech from the Fed Chair Jerome Powell on Thursday at a virtual IMF seminar, in which he will likely share his views on global recovery and the monetary policy outlook. The US weekly initial jobless claims data will also be closely eyed.

In the medium term, the prospects of a stronger economic recovery, alongside President Joe Biden’s fresh $2.25 trillion infrastructure spending plan, may continue to encourage investors to shift their capital into risk assets such as equities for yield and growth. Non-yielding precious metals appear lackluster against this backdrop, especially if real yields continue to rise.

Gold Prices vs. DXY US Dollar Index

Source: Bloomberg, DailyFX

The world’s largest gold ETF – SPDR Gold Trust (GLD) – saw continuous net capital outflows over the past few weeks. The number of GLD shares outstanding fell to 353.0 million on April 6th from a recent high of 407.1 million observed on January 4th, marking 54.1 million shares of decline. Gold prices have fallen by 11.8% during the same period. Gold prices and the number of outstanding GLD shares have exhibited a strong positive correlation of 0.87 over the past 12 months (chart below).

Gold Price vs. GLD ETF Shares Outstanding – 12 Months

Source: Bloomberg, DailyFX

Gold Price Technical Analysis

Gold prices are testing an immediate resistance level at US$ 1,744 – the 23.6% Fibonacci retracement. A successful attempt would probably intensify near term buying pressure and carve a path for price to challenge the next key resistance at US$ 1,785 (28.3% Fibonacci retracement). A failed attempt however, would lead to further consolidation within a range-bound condition between US$ 1,676 and 1,744. The primary trend remains bearish-biased, as suggested by the downward-sloped 50- and 100-day SMA lines, although the 20-day SMA seems to be edging up.The MACD indicator is trending higher beneath the neutral midpoint, suggesting that selling pressure is fading and momentum is tilted towards the upside.

Gold Price – Daily Chart

of clients are net long.


of clients are net short.

Change in	Longs	Shorts	OI
Daily	1%	3%	2%
Weekly	-5%	43%	2%

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter