Amidst a softer dollar—US Dollar Index trading a touch off session lows—the price of spot gold (XAU/USD) recently refreshed YTD highs of $2,032, a whisker shy of the all-time high at $2,075.
What’s driving the price of gold?
Soft demand for the buck is a primary catalyst behind the yellow metal’s spirited advance. Fed policy tightening expectations are fading; according to short-term interest rate markets, the probability for a 25bp push or leaving the Fed Funds rate unchanged is about even for the next meeting, with the belief that the Fed will begin cutting rates as we near the year-end to around 4.00%, which is naturally weighing on the US dollar and underpinning gold. Remember that when the dollar declines in value versus other currencies, foreign purchases of gold are cheaper, thus supporting demand. Conversely, a rise in the buck will see the metal become expensive, which, ceteris paribus, can impact demand.
US bonds are rising alongside the yellow metal, weighing on yields and the USD. Traditionally, when US rates depreciate, gold prices tend to catch a bid. The 60-day rolling correlation coefficient between the benchmark 10-year US Treasury yield and XAU/USD is currently at -0.9. As increased rate cuts are being priced in, the appeal for the yellow metal will likely continue gaining traction.
ATH Likely to be Challenged
Technically, limited resistance is evident on the weekly timeframe, following the breach of resistance from $1,988. This paves the way for a run at the ATH of $2,070. You may recall that I highlighted the daily timeframe’s price action in the Weekly Market Briefing, paying specific attention to a clear-cut Pennant formation (italics):
Working with just the daily chart this week, we can see that since 20 March, the yellow metal has been in the process of crafting a potential bullish pennant pattern between $2,009 and $1,934. Note that the pattern is confined between support and resistance from $1,949 and the widely watched $2,000 base. With pennant formations traditionally viewed as continuation patterns, a breakout to the upside could be seen. This may have the price overthrow $2,000 resistance to eventually approach all-time peaks of around $2,075, technically representing double-top resistance.
As you can see from the recent XAU/USD buying, we have seen the price breakout above the bullish Pennant formation and overthrow $2,000 resistance. Similar to the weekly scale, this opens the door for an approach to test the ATH.
Consequently, having noted that both the weekly and daily timeframes exhibit scope to voyage higher, the H1 timeframe’s trendline support taken from the low of $1,950 could be a location buyers welcome, if tested. However, breaching the aforesaid trendline support also remains on the table, as the unit might retest the upper edge of the widely watched $2,000 level and form support before attempting to test the mettle of $2,075.
What’s driving the price of gold?
Soft demand for the buck is a primary catalyst behind the yellow metal’s spirited advance. Fed policy tightening expectations are fading; according to short-term interest rate markets, the probability for a 25bp push or leaving the Fed Funds rate unchanged is about even for the next meeting, with the belief that the Fed will begin cutting rates as we near the year-end to around 4.00%, which is naturally weighing on the US dollar and underpinning gold. Remember that when the dollar declines in value versus other currencies, foreign purchases of gold are cheaper, thus supporting demand. Conversely, a rise in the buck will see the metal become expensive, which, ceteris paribus, can impact demand.
US bonds are rising alongside the yellow metal, weighing on yields and the USD. Traditionally, when US rates depreciate, gold prices tend to catch a bid. The 60-day rolling correlation coefficient between the benchmark 10-year US Treasury yield and XAU/USD is currently at -0.9. As increased rate cuts are being priced in, the appeal for the yellow metal will likely continue gaining traction.
ATH Likely to be Challenged
Technically, limited resistance is evident on the weekly timeframe, following the breach of resistance from $1,988. This paves the way for a run at the ATH of $2,070. You may recall that I highlighted the daily timeframe’s price action in the Weekly Market Briefing, paying specific attention to a clear-cut Pennant formation (italics):
Working with just the daily chart this week, we can see that since 20 March, the yellow metal has been in the process of crafting a potential bullish pennant pattern between $2,009 and $1,934. Note that the pattern is confined between support and resistance from $1,949 and the widely watched $2,000 base. With pennant formations traditionally viewed as continuation patterns, a breakout to the upside could be seen. This may have the price overthrow $2,000 resistance to eventually approach all-time peaks of around $2,075, technically representing double-top resistance.
As you can see from the recent XAU/USD buying, we have seen the price breakout above the bullish Pennant formation and overthrow $2,000 resistance. Similar to the weekly scale, this opens the door for an approach to test the ATH.
Consequently, having noted that both the weekly and daily timeframes exhibit scope to voyage higher, the H1 timeframe’s trendline support taken from the low of $1,950 could be a location buyers welcome, if tested. However, breaching the aforesaid trendline support also remains on the table, as the unit might retest the upper edge of the widely watched $2,000 level and form support before attempting to test the mettle of $2,075.