Gold eyes $1900

In the past week the Gold market moved in red territory performing its first negative week since late April. Even though Gold moved notably lower it managed to rebound most of the ground lost but still finishing in favor of the bears. This week’s report will be dedicated to explaining the recent Gold price action as well as what the next days may have in place for Gold traders to keep in mind. As always this report will be ending with our technical analysis in order to provide our personal views on important levels or trends related to the Gold market.

We make a start with the analysis over the day that Gold lost most of the ground mentioned in our intro. That day was the 3rd of June and the movement was carried out during the early Asian session and lasted until the European afternoon. No important financial releases related to Gold where expected at that specific time. Yet a rather important speech by Federal Reserve Bank of Dallas President Robert Kaplan on national and global economic issues hosted by the Federal Reserve Bank of Dallas is among the top reasons that may have created this movement for Gold. During his speech Robert Kaplan called for the Federal Reserve to debate how and when to start reducing its support for the economy.

As an explanation to the advantage of our followers a deeper understanding is required here as this can significantly change the current economic fundamentals. In order to support the economy, the Fed carries out quantitative easing which is a process of bond buying by the central bank using new printed money or by the means of electronic transaction which again increases the money supply. At this point we must understand the impact on the currency. As the Fed prints more money and increases supply, the USD becomes cheaper and inflation rises. One of the effects of this action is usually higher Gold prices. With Robert Kaplan’s comment however, it was comprehended that the QE program may need to be reduced or even done with, which seems to reverse the current fundamentals of the US economy. This could be the reason behind Gold’s sudden drop on the specific day and time. Any similar headlines on the Fed changing its stance could have a similar effect on Gold.

Moreover, on the next day, the 4th of June the market was filled with optimism over the soon to be released US employment report for May. As often happens however, the figures may have not satisfied traders especially speaking of the NFP figure which in some analysts opinion could have been better. In our personal view, the figures could have been worse and the US employment report for May is superior compared to the one released in April. Yet the market’s reaction was to push risk related instruments like Gold to higher prices and Friday’s session managed to do exactly that for the yellow metal. Indeed the US employment report created volatility within the FX and Gold markets just exactly as we noted in our last Gold market review. We would like to point out that from our perspective, the market will react to expectations rather than previous figures.

As conclusion we would like to point out some upcoming economic releases from the US that may determine the price action and direction of Gold’s price possibly being of interest to traders. On the 10th of June we get the US inflation data for May and the weekly Initial Jobless claims figure. We would like to highlight inflation at this point as it has served Gold’s price direction previously and could entice traders. On the 11th of June we get the Preliminary University of Michigan Sentiment for June. The final and very important financial releases before our next report will be on the 15th of June when we get the US Retail Sales and Industrial Production figures both for May.

Análise técnica

XAU/USD 4 hour chart

After the 3rd of June which can be considered the most active day for Gold in the past weeks the price action has been moving within our currently noted (R1) 1900 resistance and our (S3) 1860 support. As an important resistance that was tested twice in May we have also noted the (R2) 1913 line. Also the (R3) 1927 could be a target for the bulls in case of a notable run higher. If the precious metal is to head south then the (S1) 1883 line maybe the first to be tested. If the selling persists and the price action falls to lower levels we could see the (S2) 1871 line being revisited while if this takes place then the (S3) 1860 could also be seen once again as it was tested in May. The RSI has steadily returned from a brief fall below the 30 level on the 3rd of June yet the trend line seems to be stabilizing at 50 which could be a bearish sign in the short term. Even though Gold’s steady upward movement may have been threatened in the past week the trend was not broken in our opinion. Yet at the moment we may be seeing some sideways tendencies being in play. If the (R1) 1900 round number level is breached convincingly, then higher grounds are inevitable in our opinion.

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