Gold Technical Analysis: Sticking to $1800

Mahmoud Abdallah

The price of gold is still on a downward path, and but gold is sticking to the level of $1800, which may give bull hopes for an upward correction.

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Gold futures settled lower yesterday, reaching the support level of $1784 before settling around the $1808 level at the beginning of trading on Thursday. Gold's attempts to rebound higher this week are still in need of more momentum. Those attempts weakened as equity markets rallied and the greenback continued to see some strength, as it continued to benefit from the Fed Chairman's comments on the monetary policy stance. Also, high US Treasury yields continued to put pressure on gold prices.

Silver futures closed higher at $27.859 an ounce, while copper futures settled at $4.2945 a pound.

Recent concerns about high interest rates and inflation have subsided somewhat after US Federal Reserve Chairman Powell reiterated that US interest rates will remain at near zero levels and the bank will continue its asset purchases at the current rate until “another major progress” is made towards employment and inflation.

Powell also said that the US economy is "far from the targets for employment and inflation and is likely to take some time to achieve more substantial progress." Powell emphasized that any rise in inflation is likely to be temporary and unlikely to have a lasting impact on the economy.

Meanwhile, data released by the US Commerce Department showed that new home sales rose 4.3% to an annual rate of 923,000 in January after rising 5.5% to a revised rate of 885,000 in December. Economists had expected new home sales to rise 1.5% to 855,000 from the 842,000 originally reported for the previous month.

US new home sales are now 19.3% higher than last year at this time.

Although the average price of a new home sold in January fell to $346,400, over 5% more than a year ago, and outpacing wage gains in the United States, continued demand supported by record low mortgage rates has pushed prices up over the past year. The cost of labor and materials is also rising. Timber futures are up 130% in the past year, adding thousands of dollars to the cost of a new home.

In a separate report on home construction last week, the Commerce Department said building permit applications, which usually indicate future activity, rose 10.4% in January to an annual rate of 1.88 million units. The strong new home sales numbers in the first month of 2021 are an extension of what was the slogan for 2020 when home construction jumped 7% to 1.38 million units. It was the strongest offer since the housing boom of 2006.

Only in the Northeast did sales fall, down 13.9%. Sales jumped by 12.6% in the Midwest, 6.8% in the West and 3% in the South.

The US housing market has remained remarkably resilient in the face of the economic fallout from the coronavirus pandemic. The biggest concern of economists is availability and affordability. The inventory of available homes has decreased to a four-month supply. In January, there was a five-month supply.

Moderna announced yesterday that it has prepared experimental doses of the COVID-19 vaccine that better matches a modified version of the virus, and is ready for tests to see how the update works. Health authorities say that the first generation of COVID-19 vaccines still protect against the types of virus that appear in different parts of the world. But in the event that vaccines ultimately need to be updated, manufacturers are working on how to adjust their prescriptions.

The variable of greatest concern currently is the strain that first appeared in South Africa. Moderna said it created doses of the vaccine specifically targeting this type and shipped them to the National Institutes of Health for a study.

Regulators in the United States say that the renewed vaccine will not need to be studied for months using thousands of people. But it will need to be tested on several hundred people, to see if their immune systems react similarly to the updated dose as the original dose. Moderna also said it has also begun testing whether simply administering a third dose of the original vaccine will provide an additional immune boost that can protect against the variants, even if they are not quite a match.

In a separate announcement, Moderna also said it plans to manufacture 700 million doses of the COVID-19 vaccine globally this year, up from 600 million. The company also said it is making new investments in manufacturing capacity that could produce 1.4 billion doses in 2022.

Technical analysis of gold:

On the daily chart, the price of gold is still on a downward path, and but gold is sticking to the level of $1800, which may give bull hopes for an upward correction. In order for the rebound to succeed, the price of gold still needs to move towards the resistance levels of $1818, $1832 and $1855. On the downside, the breach of the $1785 support level will give the bears the momentum to continue the current path and thus move towards stronger descending levels. I still prefer to buy gold from every downside.

The price of gold today will interact with the strength of the dollar and market risk sentiment, as well as the reaction from the announcement of US economic data, namely the rate of GDP growth, unemployment claims, durable goods orders and pending US home sales.

Gold chart

Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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