Gold prices suffered a drop but were able to stabilize throughout the previous week as the US dollar was able to gain strong momentum and was able to climb to its two-week high.
We must start this report by making a reference to the reasons that the greenback displayed strength in its previous sessions which has subsequently sent the precious metal to very low grounds, previously seen in January 2019.
The dollar is mostly driven by ambiguity surrounding the potential agreement between China and the U.S. which has put negative pressure towards safe-haven flows.
While there is no agreement, the dollar could keep strengthening against its major counterparts while the precious metal could remain oversold and far from market attention.
The dollar index, an indicator of the greenback’s strength against other major currencies, was holding near 97.008, the highest level since February 19, posted earlier in the week.
U.S. President Donald Trump stated in the previous days that trade talks with China were advancing smoothly but also left the door open for a no deal between the world’s two largest economies.
Any resolution to the ongoing trade dispute between the United States and China is likely to affect strongly Gold’s direction and traders should be aware.
According to a Reuter’s poll of strategists, the U.S. dollar could lose power against a basket of other major currencies over the coming year due to a positive outcome between the U.S and China trade negotiations that could depreciate the greenback.
How US economy affect Gold Markets
From a long-term perspective we would have to look at the US economy to examine whether any events can heavily affect the US dollar which has the adverse relationship with the precious metal.
Many analysts believe the US economy is undergoing a slowdown which can also be appointed to the deceleration of the annualized GDP growth rate on a year to year basis.
Moreover, the growing fiscal deficit is also a matter that creates worries for the US economy and while the US has immense economic resources to sustain its economy, it could also create macroeconomic issues as they have not confronted the matter until now, but they will have to deal with it at some point one way or another.
Gold traders around the globe seemed to have rejected Bullion when its strength did not reach as much as expected in the previous weeks.
In more detail, traders expected the shiny metal to surge to the round number and significant technical level of 1350.
However when the precious metal failed to reach that level, Gold bears jumped in drastically to capitalize on the downfall which exemplified the drop even further.
In our opinion Gold Bulls are not done yet and could soon take over for a new rally.
This opinion could be based on the fact that US president Donald Trump has confirmed a strong US dollar has the potential of having a negative effect on the US economy, but also of offsetting some exports targets, as an expensive greenback repels foreign purchases from the US.
The Fed has also effectively supported the notion of a weaker dollar, as they remain in a wait and see position and will determine if further rates could take place in the future.
Technical Outlook of Gold
If a bullish run is established we could see XAUUSD moving above (R1) 1295.30 resistance level and aiming higher for the (R2) 1301.59 resistance barrier.
Even higher we could find the (R3) 1306.67 resistance barrier.
XAUUSD could also maintain its sideways motion between the (R1) 1295.30 resistance barrier and the (S1) 1289.23 support barrier.
In a bearish run we could see the precious metal dropping below the (S1) 1289.23 support line and aiming for the (S2) 1284.39 and even lower for the (S3) 1279.74 support barrier.
Please note the US employment report to be released today 13:30 GMT time could have significant effect on Gold prices.