Gold Technical Analysis: Making Good Use of USD's Decline

Mahmoud Abdallah

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The decline of the US dollar and in US bond yields contributed to gold's gains that reached the $1749 resistance level and stabilized around $1745 at the beginning of trading on Wednesday. Demand for gold as a safe haven increased after data showed that consumer price inflation in the United States accelerated in March.

In the same performance, silver futures rose 2.3% at $25.426 an ounce, while copper futures rose to settle at $4.0340 per pound.

Data released by the US Labor Department showed that the annual inflation rate in the US jumped to 2.6% in March from 1.7% in February. Economists had expected the rate of inflation to come in at 2.7%. Core price inflation rose to 1.6% year-on-year in March, after a 1.3% advance the previous month. The US inflation rate rose more than expected in March, but not enough to push the US dollar higher in a sign that markets may have already priced in higher inflation in the coming months.

The core US Consumer Price Index - which excludes variables like fuel - rose 0.3% compared to the previous month, higher than the 0.2% expected and 0.1% recorded in February. The annual increase in core inflation came in at 1.6%, higher than the expected figure of 1.5% and the February figure of 1.3%. Economists expect core inflation to reach 2.5% temporarily in the coming months as the underlying impacts intensify, and demand increases upon reopening amid supply chain woes. It will not be until 2022 when an early closing of the production gap leads to the base rate that pressures will moderate above 2% on a more sustainable basis, allowing the Fed to raise interest rates early in the third quarter of 2022.

Expectations increased with an above-consensus inflation reading in the wake of last week's PPI inflation report, which showed price pressures building up among US manufacturers.

The United States yesterday recommended a "pause" in the use of a single dose of the Johnson & Johnson COVID-19 vaccine to investigate reports of rare but serious blood clots, which led to a chain reaction around the world and set back the global vaccination campaign. Accordingly, the Centers for Disease Control and Prevention and the US Food and Drug Administration announced that they are investigating unusual clots in six women between the ages of 18 and 48, with one death.

The Acting Food and Drug Administration Commissioner expected the suspension to last for only a few days. But the decision sparked swift action in Europe and elsewhere as the drug company and regulators have moved to stop using the J&J vaccine, at least for now. Hundreds of thousands of doses were due to arrive in European countries this week, at a time when the European Union suffers from lack of supplies, logistical problems and concerns about blood clotting in a small number of people who have received the AstraZeneca vaccine.

In general, any slowdown in vaccine deployment and dosing could have wide implications for global vaccination efforts. The J&J vaccine has been very promising because a single dose regimen and relatively simple storage requirements will make it easier to use, especially in less affluent countries.

Technical analysis of gold:

On the daily chart, despite the recent gains of the gold price, it is still in a preliminary stage to break the downward trend that dominated the performance in the past few months. The break in the trend will not get stronger, and the bulls will not regain control of performance without breaching the psychological resistance of $1800. In return, bullish hopes will evaporate if the bears return to the support level of $1710. So far, I still prefer to buy gold from every downside. The obstruction of global vaccination efforts against the virus is delaying the timing of global economic recovery, which is an opportunity for gold to make strong gains.

The price of gold will be affected today by the strength of the US dollar and the extent to which investors are willing to take risks or not, as well as the yields of US bonds and the reaction from the comments of US monetary policy officials today led by Jerome Powell.

Gold

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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