Gold under the spell of the bears

Gold prices have started to decline towards lower grounds after a relative stabilisation identified in our previous report last week. The shiny metal’s abrupt movement lower over the past two days has captivated the attention of traders given also the recent low volatility in other markets. Fundamentally there are a number of reasons setting the precious metal’s price under pressure, yet we would like to start with the US yields which are on the rise lately. Its’ characteristic that the US 10 year yield seems about to reach 1.7630 which surpasses the prior one-year high level reached about 10 days ago. The rise of the US yields underscored the opportunity cost suffered by gold bearers and hence contributed to the bearish tendencies of the shiny metal.

The rise of the US yields may resemble expectations of a reflation in the US economy which were further supported also by Biden’s plan for a wide infrastructure spending. In a White House confirmation it was noted that the US President will be outlining how the US would pay for the $3-$4 trillion infrastructure plan on Wednesday. The plan is to be heavily debated, yet it should be noted that Democrats have a majority in the House of Representatives and score a tie in the US Senate, which could make the passing of such a bill as plausible. Gold traders should consider the announcement as a key risk event in the coming days.

Such plans could provide further support for the USD, which tends to maintain a negative correlation with gold’s prices as the precious metal is denominated in USD. It’s not by accident that since Monday the USD has been rising, while at the same time gold’s prices have been dropping. It should be noted that there were some solid figures deriving from recent financial releases which tended to keep optimism for the recovery of the US economy at rather high levels. It’s characteristic that the GDP rate accelerated more than expected for Q4, while Consumer confidence improved in March. In addition to the allready mentioned indicators, we must note that the weekly initial jobless claims figure dropped more than expected, actually reaching the lowest level since the start of the pandemic, creating some hopes for a tightening of the US employment market. Also, the rapid pace of the US vaccination program contributed to such an optimism given that it could lead to a quicker return to some sort of normality. On the flip side, the uncertainty created by the collapse of a hedge fund named Archegos Capital could create some support for gold’s price, yet we must note that the market worries may have eased today. It should be noted though that global banks my occur substantial losses from the downfall of the hedge fund with Goldman Sachs, Morgan Stanley, Nomura, Deutsche Bank and UBS shares dropping, while Credit Suisse also warned of major losses enhancing the uncertainty in the markets on Monday.

As for major risk events we would like to highlight some financial releases with special emphasis on the US employment market, which could create volatility also for Gold’s price. On Wednesday we get the ADP national employment figure for March while on Thursday the weekly initial jobless claims figure as well as the US ISM manufacturing PMI. The riskiest release though is expected to be on Friday the US employment report with its NFP figure and the unemployment rate. The release could create wide volatility with rippling effects also on the US stockmarkets as well as gold’s prices, so caution is advised for gold traders.

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XAU/USD 4H chart

Gold’s price is in the retreat since early Monday abandoning the sideways movement characterizing its price action in the past week and breaking the 1720 (R2) and today the 1695 (R1) support lines with both levels now turned to resistance. We maintain a bearish outlook for the precious metal as long as the downward trendline incepted since the 29th of the month continues to guide its prices. On the other hand, we would like to note that the RSI indicator below our 4-hour chart has surpassed the reading of 30 to the downside (circled in red) and could be implying that the precious metal is oversold and a correction higher is possible. Should the bears actually maintain control over the precious metal’s prices, we may see it breaching the 1670 (S1) support line, thus reaching a new record low since the 5th of June 2020, while even lower we have noted the 1640 (S2) support level. In an ultimate bearish scenario, we may see gold’s prices breaking the 1605 (S3) support barrier. Should the bulls take over, we may see gold’s prices breaking the 1695 (R1) resistance line aiming for the 1720 (R2) resistance level, which was also the upper boundary of the precious metal’s past sideways movement. Even higher we note the 1755 (R3) resistance hurdle for the shiny metal.

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