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

(Kitco News) Gold could be on the verge of another rally as it exceeds key resistance levels and moves to around $ 1,800 an ounce, analysts say.

The precious metal ends its second consecutive week of gains after a positive Q2 start amid a weaker U.S. dollar and a ten-year decline in U.S. Treasury yields. At the time of writing, June’s Comex gold futures were trading at $ 1,779.90, 2% more than the week before.

“The movement of gold has been mainly driven by the US dollar, which continues to fall. The dollar index is now at 91.5. Very important to note, we have seen a fairly significant decline in yield on 10 years and over All this has propelled gold up, ”TD Securities’ head of global strategy Bart Melek told Kitco News.

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

“If we can close above $ 1,815 next week, we will have a good shot at a very important move back to highs. We will possibly continue with the secular bullish gold market,” Pavilonis said. “The markets have calmed down a bit. We had so much pressure from the Federal Reserve and the European Central Bank trying to ease tensions in yields, and it worked. And what they’ve been doing behind the scenes also works, giving the metals pardon “.

The weaker U.S. dollar has allowed gold to come out of its narrow trading range, said Han Tan, FXTM market analyst. “Greenback support has eroded with ten-year Treasury yields that fell below the psychologically important 1.60% mark, which in turn has allowed gold point surpassing its 50-day simple moving average for the first time since early February, ”Tan said. .

The coming weeks also mark the period of the Federal Reserve’s media shutdown ahead of its monetary policy announcement on April 28th. ING said no additional Fed speaker could mean a weaker US dollar, which is beneficial for gold. “A quieter week for U.S. and Fed data in the off period could favor the continuation of benign market trends and a slightly weaker USD,” ING strategists wrote.

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

It was key that the precious metal had no less than $ 1,736.40 – this week’s lows, Nedoss added. “A lot of that has been data-driven,” he said.

Melek explained that the market is also recalibrating after fixing prices on too much inflation too soon.

“Inflation expectations have been a little too high and have been falling. It suggests that the market has recalibrated its view. We have seen an excessive rise along the yield curve in its expectation of higher inflation, and now we are In addition, global economic concerns are playing a role, as some countries that do not have a robust vaccine deployment plan can have a negative impact on the global recovery, ”he said.

Meanwhile, the algorithmic community has been scarce in gold, but traders need to keep an eye on the $ 1,808 level to change that trend, Melek noted. “Prices north of $ 1,800 would catalyze coverage of a significant portion of CTA’s current short positions.”

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

Before much further progress is made, it must be confirmed that the increase in U.S. 10-year Treasury yields is contained.

“The big battle here will be between the Fed and the market. The Fed says any inflation is likely to be transient due to the side effects, while the market may start to worry that they are behind the curve. We are still waiting for the Statement. from the Fed to tell us they will stay, ”Melek said.

Data to see

Announcements about European Central Bank (ECB) and Bank of Canada (BoC) interest rates are on the radar next week. They come just one week ahead of the Federal Reserve’s April 27-28 monetary policy meeting.

“The ECB will examine temporary increases in general inflation and will not tolerate significant changes in bond yields unless they are the result of improved growth prospects. The bank’s decision to frontally charge asset purchases in the last meeting wanted to limit the increase in yields, which have tracked the movements of the U.S. Treasury, ”ING strategists said.

Markets will also look at the latest U.S. unemployment claims data and existing home sales, which will be released on Thursday, as well as Friday’s U.S. manufacturing PMI and new home sales.

As macro data will be quieter than usual next week, analysts are also closely monitoring the progress of U.S. President Joe Biden’s infrastructure plan.

“There is little evidence of bipartisanship in the $ 2 million package and it looks like Democrats will push it through the reconciliation process to avoid the need for 60 senators to agree to put it to a vote. However, not all Democrats are there. they’re totally on board, which means we could still see changes in the package, especially around the tax side, ”said James Knightley, ING’s chief international economist.