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Gold Price Fundamental Forecast: Bullish
Gold pricescapitalized on dismal US PMI figures asUS Dollarsunk XAU/USD may gain in the short-run on more disappointing US data Possibility of US Dollar gains in the medium-term may subdue gold Trade all the major global economic data live and interactive at theDailyFX Webinars . We'd love to have you along.
XAU/USD Wrap
Gold prices spent most of last week in rather mute trade until a sudden surge of volatility on Thursday sent the precious metal rallying. Looking at the XAU/USD 4-hour chart below, we can see that it rallied at the expense of theS & P 500 , US Dollar and local front-end government bond yields. This kind of trading dynamic reflected increased Fed rate cut expectations on a dismal set ofUS PMI data .
Gold Rises as US PMI Data Sinks USD and Bond Yields
Chart Created in TradingView
Gold Week Ahead
Gold's sensitivity to unison behavior in the Greenback, S & P 500 and bond yields underscores its anti-fiat appeal rather than as a safe-haven asset. The yellow metal has no interest-bearing qualities, which are what typically give currencies their appeal. As an example, last week we saw theAustralian Dollaraccelerate its depreciation on the buildup ofRBA dovish expectationswhich lead to a 90% probability that we may get acut in June .
With that in mind and using last week as an example, the impetus for additional gains in gold prices depends mostly on how far Federal Reserve rate cut expectations can go. As a reminder, the central bank has reiterated itsdata-dependent stance . To that end, there are plenty of opportunities such as US consumer confidence and GDP data to impact the Fed's outlook on US economic growth prospects. Not to mention that we will also get the central bank's preferred measure of inflation, core PCE.
The US Citi Economic Surprise Index is negative and has been so since around the middle of February. This does suggest that economists' are overestimating the health and vigor of the economy, leaving data vulnerable to disappointment in the coming week. Having said that, data in the US has been tending to fall short by increasingly smaller margins since the beginning of this month.
While in the short-run this may support gold, gains in the highly-liquid US Dollar during times of aggressive risk aversion can counter this and should not be discounted. The reason why this is prominent is because of the increase in US-China trade war fears seen as of late. The latter nation seemskeener this time around to stand its ground , calling out the other side for leading to the stall in talks with the world's-largest economy.
Gold Trading Resources:
See our free guide to learn what are thelong-term forces driving gold prices Just getting started?See our beginners' guide for FX traders Having trouble with your strategy?Here's the #1 mistake that traders make --- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or@ddubrovskyFXon Twitter
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