Key Talking Points:
Recommended by Daniela Sabin Hathorn
How to Trade Gold
GOLD TAKES ADVANTAGE OF WEAKER YIELDS
After a rather dull start to the week, gold has managed to break above key Fibonacci resistance (23.6% at $1,768), underpinned by a softer USD and a notable retracement in bond yields. Now that markets have had time to digest the positive economic data out this past week, the current price action seems to suggest that markets are trusting Powell’s rhetoric centered on a stable and gradual economic recovery, allowing for interest rates to be depressed for longer, and playing down previous fears about excessive inflation, which has allowed gold to catch up from it previous bout of weakness.
Market participants will continue to monitor closely the move in bond yields to determine gold price momentum given the significant negative influence that rising bond yields have on the precious metal. The USD is also a key variable and the currency is starting to look a bit oversold against other majors, so we could see XAU/USD struggling to keep up positive momentum if the Dollar is able to stem some of its recent weakness.
XAU/USD KEY LEVELS:
The daily gold chart shows the formation of a short-term double bottom at $1,678 which has allowed for a reversal in momentum as new buyers have come into the market. A key area of resistance to be cleared in the next week will be the lower ascending trendline at $1,781, at which point it may be turned into short-term support as gold faces its next resistance in the $1,820 – 40 area. If we clear this area then this could develop into a major move.
XAU/USD Daily Chart
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— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin