David Becker
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Gold prices surged higher rising nearly 1% on Friday. Prices are fast approaching the 2019 highs and are poised to break out. Softer than expected US industrial production data along with weak Chinese inflation data provided the backdrop for higher gold prices. The lower IP in the US combined with Thursday’s softer than expected US retail sales, weighed on the dollar and paved the way for higher gold prices.

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Technical Analysis

Gold prices surged higher and are poised to test target resistance near the January highs at 1,325, which coincides with a downward sloping trend line. A close above this level would lead to a test of the 2018 highs near 1,365. Short term support is seen near the 5-day moving average near 1,311. Additional support is seen near the 20-day moving averaged at 1,305. Short term momentum has turned positive as the fast stochastic generated a crossover buy signal. The fast stochastic is in the middle of the neutral range which sometimes reflects consolidation. Medium-term negative momentum has decelerated as the MACD histogram is printing in the red with a rising trajectory which points to consolidation.


Chinese Inflation Was Weaker than Expected

China reported weaker than anticipated consumer and producer prices. CPI increased 1.7% year over year and 0.1% year over year, respectively.  CPI was expected to increase by 1.9% year over year while PPI was expected to increase by 0.3% year over year.  The very low levels of producer prices are pointing to deflation. In a deflationary environment, the yuan will begin to lose its value, attracting Chinese investors to gold.

US and Chinese Trade Talks End

US-China trade talks ended on Friday in Beijing.  Lighthizer and Mnuchin said progress made, yet other reports suggest the two sides remain far apart.  President Xi also saw progress and said that the next round of talks will take place next week in Washington.  President Trump suggested that he is open to extending the March 1 tariff deadline by another 60 days.

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