Gold Price Prediction – Gold Grinds Higher Despite Contraction in the EU Economy

European economic data disappoints
David Becker
Gold Bars and Dollar

Gold prices held up on Friday despite a rising dollar and a decline in the Euro following worse than expected European data. The Fed earlier in the week was more dovish than expected which eased dollar strength allowing gold prices to gain traction. Yields have been on the retreat, with the German 10-year falling into negative territory. Slowing gold concerns in the US has flattened the yield curve which could point to a recession.

Technical Analysis

Gold prices moved higher but continue to trade sideways, glinging in a grinding upward trend. Support is seen near the 50-day moving average at 1,305. Additional support is seen near the 10-day moving average at 1,304. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices and accelerating positive momentum.

 

Europe Looks Headed for a Recession

The survey data released for manufacturing and services point a a possible recession in Europe. The PMI data released on Friday in Europe was softer than expected and lead to a tumble in the 10-year yield. Bund yields dropped into negative territory. The German flash PMI for manufacturing fell to 44.7 from 47.6, which is well into contraction territory. This reflects that German manufacturers believe there will be a significant contraction in the German economy. The compositve declined to 51.5 from 52.8. French manufacturing PMI declined to 49.8 from 51.5 and the services PMI dropped into contraction territory dropping to 48.7 from 50.2.  The overall EU PMI also crumbled into contraction territory dropping to 47.6 from 49.3. This bucked expectations that the flash EU PMI would increase.

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