Gold Price Prediction – Gold Whipsaws as Sentiment Drops

Gold prices initially moved lower as the Euro lost ground following softer than expected housing price inflation as declining sentiment.  The ECB’s Visco was on the tape describing the need to be cautious on Italy’s deficit spending. Gold rebounded from session lows but was down on the day.  Prices are consolidating in a relatively tight range. Support is seen near the 10-day moving average at 1,253. Resistance is seen near the 50-day moving average at 1,286. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. The MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices.

ECB’s Visco urged caution on deficit spending in Italy. The Italian central bank head said the new government needs to keep public spending in check warning that while he supported higher investment to boost growth “it would be risky to rely on that alone to get out of the low growth trap Italy has been stuck in for a long time”. Visco warned that “we need prudence and foresight to avoid tensions or possible crisis and not to leave the Italians of tomorrow a legacy of higher debt and lower income”. At the same time he said that a cautious monetary policy stance by the ECB is needed to avoid sudden spikes in long term bond yields and volatility on financial markets.

Eurozone house price inflation accelerated

Eurozone house price inflation accelerated to 4.5% year over year in Q1 this year, up from 4.3% year over year in the previous month. Prices rose 0.6% quarter over quarter. Prices actually fell -0.4% quarter over quarter in Germany, but the annual rate still accelerated to an above average 5.3% year over year from 4.6% year over year, amid warnings that house prices in urban centers area already substantially overvalued. In Ireland the annual rate reached a whopping 12.3% year over year in the first quarter, which will add to concerns that the low interest rate environment is fueling the creation of new bubbles.

German ZEW investor confidence weakened more than expected

German ZEW investor confidence weakened more than expected, with the expectations reading falling back -8.6 points to just -24.7, the lowest reading since August 2012. The current conditions indicator also dropped sharply despite the recent rebound in orders and production number. The ZEW institute highlighted “great political uncertainty” and “fears over an escalation of the international trade war with the United States” as the main reasons for the decline, with the “anticipated negative effects on foreign trade” overshadowing improvements in incoming orders and the labor market.