Advance XAU / USD at critical junction

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XAU / USD Analysis:

  • Precious Metal Continues Bullish Rise Amid Inflation Concerns
  • Gold remains overbought, opening the door to a slowdown or retracement
  • Fed policy, DXY and real yields continue to boost the precious metal

Gold continues to shine as inflation concerns rise

Commodities remain a hot topic in 2021 as the reopening of the global economy has boosted demand for a number of commodities including: oil, copper and gold. Although gold peaked in 2020, the precious metal continues its uptrend after a decisive breakout above the several-month descending channel, shown below.

Gold Weekly Chart: Long Term Trendline Intact

Graphic prepared by Richard Snow, IG

However, gold’s appeal goes beyond its industrial use as it is often sought after as a store of value, especially in times of rising inflation expectations.

Inflation is leading the way again

Last week we saw higher than expected inflation in the form of the Core PCE price index which came in at 3.1% (2.9% expected), propelling the precious metal higher. .

Daliyfx economic calendar

For all data publications and events evolving in the market, consult the DailyFX Economic Calendar

Gold (XAU / USD) Key Technical Levels

Gold trades between two levels of fib (50% and 61.8%) that coincide with previous levels of resistance to 1880 and the 1920-1924 range. If the current uptrend looks like the 2020 episode, a move above 1924 would certainly support this narrative – leaving the 1958 level as the next big hurdle.

However, the fact that gold was overbought for two weeks opens the door to a short-term pullback or even a period of consolidation before moving higher. Adding to the possibility of slowing bullish momentum is the decrease in entries into the world’s largest gold ETF SPDR Gold Trust (GLD). It should be noted that although the fund saw an increase in inflows last week, the inflow rate compared to the previous two weeks fell significantly, suggesting some profit taking. For more information, consult the full report of Margaret yang.

A move around 1880 could rekindle interest in a bullish chase game and would be the first real test of the bull run.

Gold daily chart

Daily gold chart

Graphic prepared by Richard Snow, IG

Bullish pilots stay for gold

Fed policy and real returns

Fundamentally, gold remains attractive as the Federal Reserve has yet to sound the alarm on inflation and is prepared to withstand inflation levels above the 2% target for some time. The effect this has on falling real yields remains favorable for gold.

Weaker US dollar

the US dollar weakened for most of the second quarter of 2021 and because gold is valued in USD, this makes gold relatively cheaper for non-U.S. market players. Gold can continue to benefit as long as the dollar remains repressed.

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnotowFX

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