Gold is hard to break 1800 but edge higher as pullback in U.S. dollar lifts appeal (With Trading Strategy)

Gold prices ticked up on Wednesday, lifted by a retreat in the dollar, although gains were kept in check after U.S. Treasury Secretary Janet Yellen said interest rates may need to rise.

The spot gold fell 0.08% to $1776.98 per ounce by 15:50(GMT+8).

“A pullback in the dollar more broadly, after last night’s strong selling has been supportive for gold prices,” IG Market analyst Kyle Rodda said.

“There is going to be a reasonably strong resistance zone between $1,800 and $1,810, if prices happen to push through there, you might see some buyers on the other side of that.”

The dollar index was down 0.1% against its rivals after scaling a near two-week peak in the previous session.

Gold prices fell more than 1% on Tuesday after Yellen said she sees no inflation problem brewing, downplaying earlier comments that rate hikes may be needed to stop the economy overheating as President Joe Biden’s spending plans boost growth.

Higher interest rates dull gold’s appeal as it increases the opportunity cost of holding non-yielding bullion.

Investor focus is expected to shift to April payrolls data due on Friday for further cues on the health of the U.S. economy.

So far, Federal Reserve Chair Jerome Powell has argued the labor market is still far short of where it needs to be to start discussing tapering asset buying.

The recent rebound in consumer appetite for physical gold will not stop prices from falling to $1,600 an ounce by the end of the year, according to Capital Economics.

The firm's bearish outlook on gold remains well intact despite the precious metal's attempts to once again breach the $1,800 an ounce level. 

New data from the first quarter of this year point to a strong rebound in physical demand for gold, especially within India and China.

During the first quarter, most of the demand was driven by the world's two major consumers of physical gold. After dropping off last year, demand for jewelry, bars and coins in both countries managed to recover close to the levels reported in 2018 and 2019, according to the World Gold Council's latest Gold Demand Trends report.

On top of that, recent trade data is showing a rise in imports, with India's March gold imports, for example, coming in at their highest level since 2013. There were also reports that the People's Bank of China raised the gold import quota to allow around 150 tonnes of gold to be imported into China between April and May.

"Strong consumer demand for physical gold has offset some of the fall in demand for gold-backed investment products in recent months," said Capital Economics assistant economist Adam Hoyes. "But we don't think this poses much of a risk to our forecast for the gold price to fall this year."

Capital Economics listed three reasons why it still sees gold dropping nearly $200 by the end of the year.

1. It sees the rebound in physical demand as driven by a response to a drop in gold prices.

"The upshot is that consumer demand for gold responds to changes in the price (often driven by external factors) much more than the gold price responds to changes in consumer demand. So the recent rise in consumer demand is a symptom of a lower gold price, rather than a reason to think it will rise again," said Hoyes.

2. The rise in India's gold imports is a temporary phenomenon and not a permanent shift in sentiment.

"Imports may have been boosted by seasonal stockpiling and delayed purchases from earlier months given expectations for a cut to gold import duties, which was announced in February. In any case, the worrying resurgence in virus cases in India will probably also depress gold demand in the near term," Hoyes noted.

3. The U.S. real yields and the U.S. dollar are the more important drivers of the gold price this year, limiting the positive impact improved demand for the physical metal will have on the overall prices.

"We expect both to weigh on the price of gold over the next year or so. The recent rise in longer-term real yields in the U.S. will resume before long, which would increase the opportunity cost of holding gold. Meanwhile, we also anticipate that a stronger U.S. dollar will make gold more expensive to non-U.S. investors," Hoyes added.

Trading Strategy (source: Trading Central)

Pivot: 1788.00

Our preference: short positions below 1788.00 with targets at 1769.00 & 1761.00 in extension.

Alternative scenario: above 1788.00 look for further upside with 1793.00 & 1799.00 as targets.

Comment: the RSI is bearish and calls for further decline.

Supports and resistances:

1799.00

1793.00

1788.00

1776.00 Last

1769.00

1761.00

1755.00

Guideline for Trading Central strategy 

Trend chart reading guideline

1. First look at the time period in the upper left corner of the chart: ·30MIN and 1H chart shows the trading suggestions for intraday ·Daily chart shows the market trend analysis in next 2-3 days

2. The blue horizontal line on the chart marks the pivot: pivot indicates the reversal of the market. When the price is above the pivot, it indicates an upward trend, when the price is below the pivot , it indicates a downward trend. When the price breaks through the pivot, the trend is reversed.

3. The red and blue thin curves in the Candlestick chart chart are technical indicators: Red line is MA20+Bollinger bands, Blue line is MA50. under the Candlestick chart chart are also the technical indicators: Blue line is RSI, Red line is 9MA;

4. The green horizontal line is the resistance level for a price increase, and is also the profit target for long orders; the red horizontal line is the support level for a price decrease, and is also the profit target for short orders.

How to use TC strategy？

1.[Pivot] is the reversal line of the market trend. When the price up the pivot line which means in Bullish, you can open a long position or Buy. on the contrary, when the price under pivot line which means in bearish. You ‘d better make short positions or Sell. 

2. [our preference] is the main trading suggestion for your reference. You can exit your trading refer to this target or close positions before it.

3. [Alternative scenario] is the plan B for your reference. 

4. [Comment] is the technical analysis of market trends and technical support for trading strategies. 

5. [Supports and resistance] Supports are levels where the price tend to find support as it falls.

Resistances are levels where the price tend to find resistance as it rises. So, exit before the trend reverse.