Gold Prices Rally but Finish the Week in the Red

Key Insights

• Gold prices rebounded on Friday.
• The dollar finally eased.
• Treasury yields continued to remain elevated.

Gold prices rose on Friday, finishing the week down 1% but well off the weekly lows. The dollar eased finally after breaking out to fresh highs earlier in the week. Since gold is quoted in dollars, a strong dollar generally weighs gold prices. Treasury yields rose, despite a softer than expected Chicago PMI.

The Chicago purchasing managers index fell from a reading of 62.9 in March to 56.4 in April. Expectations were for a reading of 60.1. All the main subindices fell, but prices paid by firms edged up by 0.4 points to 86.1. The key sub-index for new orders registered the largest drop, retreating by 10.8 points to 51.1, its lowest level since June 2020. However, another sub-index linked to order backlogs remained high at 63.4.

Technical Analysis

Gold prices rebounded for a second consecutive trading day on Friday. Resistance is seen near the 20-day moving average eat 1,936. Support is seen near the 200-day moving average at 1,833. The 20-day moving average has crossed below the 50-day moving average, which means that a short-term downtrend is now in place.

Short-term momentum has turned positive as the Fast Stochastic generated a crossover buy signal. Prices have moved out of oversold territory as the fast stochastic prints a reading of 31 up from 15 which was below the oversold trigger level of 20.

Medium-term momentum has turned negative as the MACD generates a crossover sell signal. This occurs as the 12-day moving average minus the 26-day moving average crosses below the 9-day moving average of the MACD line. The  MACD (moving average convergence divergence) histogram has a negative trajectory that points to lower prices.