Is the gold price preparing for a major move next week?

(Kitco News) Gold could be on the brink of another rally as it surpasses key resistance levels and moves towards $ 1,800 an ounce, analysts said.

The precious metal is finishing its second consecutive week of gains after a positive start to the second quarter amid a weaker US dollar and declining US 10-year government bond yields. At the time of writing, June Comex gold futures were trading at $ 1,779.90, up 2% over the week.

“The movement in gold was mainly driven by the US dollar, which continues to fall. The dollar index is currently at 91.5. Very important to note, we have seen a pretty significant drop from the 10-year yield and with that. propelled the gold to the top, ”Bart Melek, TD Securities’ global strategy chief, told Kitco News.

The momentum is definitely on the gold side right now, RJO Futures senior commodities broker Daniel Pavilonis told Kitco News.

“If we can close above USD 1,815 next week, we have a good chance of a very memorable move back to the highs. Possibly continue with the secular bull market of gold,” Pavilonis said. “The markets have calmed down a bit. We had so much pressure from the Federal Reserve and the European Central Bank to ease tensions in yields, and it worked. And what they’ve been doing behind the scenes is also working: metal procrastination.”

The weaker US dollar has finally allowed gold to move out of its tight trading range, FXTM market analyst Han Tan said. “The dollar’s support has eroded with 10-year government bond yields falling below the psychologically important 1.60% mark, pushing spot gold above the 50-day simple moving average for the first time since early February,” Tan said. .

The coming weeks will also mark the Federal Reserve’s blackout period leading up to the April 28 monetary policy announcement. ING said no additional Fed speakers could mean a weaker US dollar, which is good for gold. “A quieter week for US data and the Fed in a blackout period could be beneficial for a continuation of benign market trends and a slightly weaker USD,” the ING strategists wrote.

There is no significant resistance for gold to USD 1,800, said senior market strategist Charlie Nedoss of the LaSalle Futures Group. “The $ 1,809.40 is the 100-day moving average, and we’ll get to that over time.”

It was vital that the precious metal not close below $ 1,736.40 – this week’s lows, Nedoss added. “Much of this has been data-driven,” he said.

The market is also recalibrating after too much inflation has been priced in too quickly, Melek explained.

“Inflation expectations were a little too rich, and they are falling. It suggests the market has recalibrated its view. We’ve seen too strong a rise along the yield curve in the expectation of higher inflation, and now we are also playing global economic concerns come into play, as some countries that do not have a robust vaccination plan could negatively impact the global recovery, ”he said.

In the meantime, the algorithmic community has been running out of gold, but traders should keep an eye on the $ 1,808 level for a change in that trend, Melek noted. “Prices just north of $ 1,800 would catalyze coverage of a significant portion of current CTA short positions.”

However, it’s too early to get too excited when it comes to gold’s future price action, Melek warned. “We’re past the 50-day moving average, the next level here is roughly north of USD 1,800.”

Before we go much higher, there must be confirmation that the rise in US 10-year Treasury yields is limited.

The big battle here will be between the Fed and the market. The Fed says any inflation is likely to be transitory because of base effects, while the market may start to worry that they are behind the curve. Fed statement to tell us they will stay, ”said Melek.

Data to keep an eye on

Interest rate announcements from the European Central Bank (ECB) and the Bank of Canada (BoC) are on the radar next week. They come just a week before the Federal Reserve’s April 27-28 monetary policy meeting.

“The ECB will review any temporary increases in headline inflation and will not tolerate significant movements in bond yields unless these are the result of improved growth prospects in interest rates, which have followed movements in US Treasuries,” said ING strategists.

Markets will also pay attention to the latest data on US unemployment benefits and existing home sales, both due on Thursday, as well as the US PMI for Friday production and new home sales.

As macro data is quieter than normal next week, analysts are also carefully monitoring the progress of US President Joe Biden’s infrastructure plan.

“There is little sign of discord in the $ 2 trillion package, and it looks like the Democrats will push it through the reconciliation process to avoid having 60 senators agree to put it to the vote. The Democrats are fully on board. which means that we can still see changes in the package, especially with regard to the tax portion, ”said James Knightley, chief international economist at ING.