Gold Price Analysis: XAU/USD bulls set to extend gains beyond $1,910

  • Gold fades Friday’s recovery moves, seesaws in a choppy a range.
  • US President Biden announces $6.0 trillion budget, revised up GDP forecast and extends infrastructure plan talks to June.
  • Reflation fears loom but softer Treasury yields drag USD.
  • Off in US restricts market moves, China PMI data will be the key.

Update: Gold(XAU/USD) touched an intraday high at $1,1910.68 on a minor pullback correction in the US Dollar. The gold has rallied from the lows of $1.678.77, a level that was last seen in late March. The US 10-year benchmark Treasury yields continued to move downwards after testing high of 1.776% in March, and is swinging in between 1.58%-1.62% in the previous week. Investors shrugged off inflationary pressure as Fed officials continued to downplay the risk of rising prices. However, recovery in global economic activities fuels the demand for the precious metal. The Fed’s dovish tone boosted the attractiveness of gold.

End of the update

Gold (XAU/USD) has started out the week on the bid, travelling from a low of $1,902.62 to a high of $1,908.80, near 0.2% higher putting the bulls firmly on course for a higher high for the sessions ahead in accordance with the following technical analysis:

Chart of the Week: Gold is going to be an exciting display of technicals

Meanwhile, the week ahead will unveil the market’s outlook with regards to inflation considering key Fed officials that have now openly acknowledged the need to discuss tapering. Further signs of strength in the US economy, such as Friday’s payrolls data, could fuel debate about tapering. Additionally, the start of the week’s Chinese PMIs in this regard is underscoring a positive growth story for the global economic recovery. While results were mixed, the overall picture is one of economic expansion. 

China PMIs: May official composite PMI at 54.2, Services big beat

Gold (XAU/USD) repeats the sideways grind above the $1,900 threshold, seesaw near $1,903-04 amid the early Asian session on Monday. The yellow metal jumped to the early January tops the previous week, the fourth in a row, as the US dollar weakness and rush to risk-safety favored the gold buyers. However, the precious metal bulls are hesitant of late amid mixed catalysts.

Fed-Biden action needs market acceptance…

US President Joe Biden announced a $6.0 trillion budget even if he has to stretch the $1.7 trillion infrastructure spending talks to June, amid harsh rejection of tax hikes from Republicans. Biden isn’t worried about the record high deficit, recently expected 7.8% of 2021-22 GDP for the current fiscal year (FY) to keep the US on the driver’s seat of global economic recovery. However, the ballooning of cash inflows mainly via tax hikes is something that stops US President Biden from his ambitious plan, which in turn could keep troubling the market players and put a safe-haven bid under the gold prices.

On the other hand, the stimulus inflow worries the US Federal Reserve (Fed) officials by fueling inflation, recently portrayed by the Fed’s preferred gauge for price pressure, Core PCE Price Index for April. Even if the Fedspeak, also joined by the US Treasury Secretary Janet Yellen, rejects the need for tapering despite accepting the likely run-up in inflation, for now, they have a little room to stay dormant.

The Australia and New Zealand Banking Group said, “This week will be the last opportunity for Fed officials to provide guidance ahead of the blackout period, which starts 5 June.  No deviation from the transitory guidance is expected and by the time the FOMC meeting later in June it will have had two CPI releases since it last met. Powell’s participation in a BIS Panel on climate change on 4 June will also be noteworthy.”

Elsewhere, the risks emanating from the worsening of the US-China trade relations and further weakness in the US Treasury yields underpin the gold buyers. It’s worth noting that the benchmark US 10-year Treasury yields portray receding inflation woes while taking rounds to 1.58% of late.

Though, a long weekend in the US and recently mixed catalysts may trigger the much-awaited pullback in gold prices if markets portray upbeat sentiment.

Technical analysis

Gold remains shy of refreshing the highest levels since early January ever since it jumped to $1,912.80. The mixed plays of RSI and Momentum indicator suggest the traders’ indecision inside the monthly rising channel.

It should, however, be noted that a two-week-old horizontal line around $1,888, quickly followed by a convergence of the stated channel’s lower line and 50-SMA near $1,886, becomes the key challenge for short-term gold sellers.

Also acting as important support could be the late January tops near $1,875, as well as the early May’s swing high near $1,845.

Alternatively, gold’s successful rise beyond $1,913 will aim for the stated channel’s resistance line close to $1,926 and October 2020 peaks near to $1,933.

In a case where gold bulls keep reins past $1,933, the yearly high of $1,960 will be in focus.

Read also: Chart of the Week: Gold is going to be an exciting display of technicals

Gold four-hour chart

Trend: Bullish

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