Gold Could Shine Again as Stimulus Tensions Continue

Under the new amendments, individuals who earn more than $80,000 per year, single parents earning more than $120,000 per year, and couples earning $150,000 will be disqualified from receiving the stimulus aid. The previous bill which passed the House had larger caps as $100,000 for individuals, $150,000 for single parents, $200,000 for couples.

Recuperating labor market in the US, decreasing Covid-19 cases could be the main motivator for the Biden Administration to further imply limits to the stimulus bill. Stronger US Dollar resulted in a significant drop of Gold. The Gold demand data shows that over the fourth quarter of the last year, Gold’s investment share dropped by 71% related to the third quarter of the same year.

Gold ETF holdings, on the other hand, had slightly increased this January after a two month loss, European funds seeing the inflow in Gold ETFs in January with 17.5 tonnes, whereas the US funds experienced an outflow of 6.3 tonnes.

Among the Central Banks: Turkey, India and Uzbekistan were the biggest Gold buyers this January, Turkey leading the purchase of 28.1 tonnes, followed by Uzbekistan with 8.7 tonnes and India tailing the Top 3 with 3.7 tonnes.

Debates and the postponement of the stimulus bill may weaken the US Dollar once again driving Gold prices higher. As technicals suggest Gold is ready to shine and surge again and is waiting for the signal.

As seen on the daily XAU/USD chart below, Gold has touched the lower edge of the descending parallel channel, which acts as a great support.

Daily RSI and MACD indicators signal the trend reversal as Gold is heavily oversold on RSI. The downtrend impulse is very strong and the support might not withstand if bears decide to push prices further.

This hourly XAU/USD chart below, also supports the downtrend, although according to the price action and an ending diagonal pattern, Gold might retrace a bit to $1737 or even to $1758.

However, if the price closes below $1703, the downtrend will continue down to $1672. The supports of Gold’s bullish reversal could be the ongoing debates around the stimulus check and the US labor market data. The US Initial Jobless Claims will be announced today and are expected to be higher by 20K related to the previous period, 2020’s fourth quarter productivity is expected to be improved by 0.1bp and Factory orders as per January are expected to increase by 1bp. Gold investors will be thoroughly watching the speech of the FED Chair Mr. Powell later today. Highlights on the economic state of the US could be decisive for the further trend continuation of Gold. If the economic recovery of the US is going well as planned by the FED, Democrats might place further restrictions and limits on the stimulus bill and eventually cancel the bill completely.