Gold Analysis: Gold in Spotlight as Uncertainty Fills The Market

The US trade deficit hits surged by 5.4% to set a new all-time-high at $74.4 billion in March. Imports also increased by 6.3% as the $1.9 trillion relief increased the demand which the US manufacturing is not yet capable of accommodating. The first quarter GDP growth had the highest pace in more than a decade at an annual rate of 6.4%. While the fast economic growth of the US sounds optimistic, investors’ anxiety over the rate hikes increases.

Janet Yellen this Tuesday said that the interest rate might need to increase to hold the economy from overheating, leading the US Dollar to a slight drop but soon after the DXY recovered as the US Treasury Secretary said that she is not predicting anything. The interest rate increase might be the subject of discussion this quarter as GDP is forecasted to increase. Since the import and export increase, so does the demand in the US, it is more advantageous for the US to hold on to the cheap US Dollar.

Russia and China were one of the main topics during the G7 Foreign and Development Ministers meetings in London. While in early April the United States officials were more rigorous in opposing Russia and China, Russia for military maneuvers near Ukrainian borders and China for the same near the borders of Taiwan, the comments of Mr Blinken sounded softer regarding the ones in April. This increases the uncertainties in the future measures taken by the US to counterpoise both countries. The rising threat of China invading Taiwan troubles Japan the most which currently has a coronavirus spread to care about. The authority of the US in confronting China and Russia would weigh on the strength of the US Dollar, so far China shows no signs of stepping back and asking not to interfere in its affairs.

The uncertainty increases as coronavirus spread and its mutations force stricter lockdowns in Japan and Turkey. Turkey goes into lockdown right before its most profitable season – tourism. Central Banks of both countries increased their Gold reserves to withhold the strong devaluation of their local currencies. Thus, in March only Japan’s CB purchased 80 tons of Gold, Turkish CB 12.9 tons, and India with the highest coronavirus infection and death rates increased its reserves by 7.5 tonnes. The second largest gold purchase in March was made by the Hungarian CB as said to hedge over the US inflation, 63 tonnes of gold were added to the MNB reserves.

The aforementioned are some of the factors that might support the further surge of Gold. All stating the laying uncertainty ahead and alertness of investors to hedge. However, as the data from the World Gold Council revelas, in the two last quarters there was an increasing demand for gold jewelry.

Source: World Gold Council

Daily XAU/USD chart still has two patterns dragging in attention – the double bottom and the bullish flag.

As of time of writing this article Gold on Overbit is traded at $1778.6 per oz and is still below the resistance of $1798 and above the dynamic support (dashed line). For Gold to resume the bullish, it must break above the resistance to proceed towards stronger resistances at $1850 – $1866.

Besides the static resistance of $1798, there are two other short-term bearish signs MA100 and MACD. MA100 as a resistance is the most unfavorable signal for Gold’s bullish run, as it could push XAU/USD down.

However, in the current state, while Gold is both above EMA55 and MA100, it still looks bullish as the historical chart suggests.

Key notes to take from these charts are, for bullish continuation, Gold must remain above EMA55, break above MA100 and above the $1798 resistance. Failing to do so, might result in another heavy drop, especially if Gold closes below EMA55.