Strong and continuous downward pressure on the US dollar allowed the gold price, XAU/USD, as expected, to move toward the historical psychological resistance level of $2000 an ounce. I mentioned in recent technical analyzes that this may increase purchases, and thus not stop at this limit, which explains the move towards the 2025 resistance level Dollar per ounce, the highest price of gold in more than a year.
In general, global financial markets are torn between different topics, as traders switch back and forth between inflation and recession risks depending on the latest round of economic data releases. The week began with the specter of inflation returning to haunt investors after OPEC + boosted oil prices, but the session closed with recessionary nerves in the driving seat after a disappointing reading on US manufacturing.
US manufacturing activity contracted for the fifth consecutive month in March, according to the ISM survey. New orders fell sharply and employment trends eased as business leaders painted a deteriorating picture of demand for commodities. It was an ugly report all around, highlighting the challenges the economy faces. The manufacturing sector is a "canary in the coal mine" for the broader economy, mounting signs of an imminent recession have encouraged bets that the Federal Reserve will cut interest rates later this year. In the market’s activity, the US dollar was the main victim.
The reserve currency absorbed some serious damage as weak data derived gave investors the green light to speculate on US interest rate cuts, sending Treasury yields lower. Accordingly, both the Euro and the British Pound made a sharp reversal during the day, as they rose by more than 1% from their lows yesterday against the sliding dollar.
Meanwhile, Gold managed to make its way back above the $1980/oz resistance area, taking full advantage of the renewed weakness in the dollar price and real yields. Pullback buyers have been in force since the banking episode, which changed the landscape for gold by cementing expectations of lower interest rates and crashing yields lower.
Warning signs in manufacturing did not scare the S&P 500, which closed higher with some help from energy stocks that stormed higher after OPEC announced plans to cut oil production. All in all, the atmosphere in equities remains upbeat as the liquidity taps have reopened now that the Fed's balance sheet has begun to expand, undoing several months of quantitative tightening.
The impressive part is that Wall Street indexes led higher even though Tesla shares fell 6%. Investors were disappointed when the electric car maker disclosed its deliveries for the fourth quarter, which didn't improve much even after Tesla slashed its prices to boost demand. The Australian dollar was leading the euphoria in stock markets and higher commodity prices, as it rose nearly 2% from yesterday's lows against its US counterpart.
The move bounced slightly after the RBA hit the "stop" button on the tightening cycle earlier today. The RBA kept interest rates unchanged and breached protocol by suggesting they may remain marginal indefinitely, introducing an element of uncertainty as to whether further tightening is needed. While the Aussie fell in the aftermath, its decline did not erase even half of yesterday's rally. The currency seems to be paying more attention to the global risk sentiment.
Gold (XAU/USD) Technical Outlook:
The general trend of the bullish gold price is getting stronger, and the move around and above the historical psychological resistance of $2000 an ounce confirms this. At the same time, according to the performance on the daily chart below, it moved the technical indicators toward strong overbought levels. The continued weakness of the US dollar and investors' appetite for havens may ensure the bulls' move. Aim for stronger bullish levels, and the price of $2070 an ounce, the highest of gold ever, maybe the next target.
On the other hand, in the event of strong profit-taking sales, the support levels of 1975 and 1935 dollars an ounce may be the most important trend on the daily chart as well. The price of gold may remain in its upward trajectory until the markets react to the announcement of the US job numbers.
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