Gold Price Outlook
Gold
prices gained on Thursday as the anti-fiat yellow metal capitalized on a
weaker US Dollar and falling longer-term Treasury yields. Weakness in
the latter followed a brief spike on this weeks FOMC meeting minutes,
where officials noted that it could be soon time to discuss tapering
policy. That may pose a threat to XAU/USD, which tends to benefit when
yields are depressed given it is a non-interest bearing asset.To get
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A
reason why the yellow metal may have climbed on Thursday was falling
inflation expectations, which drives what investors think the Fed could
do. To that end, there was a general decline in commodity prices. Copper
is down over 7% from the all-time high on May 10th. Lumber futures are
also down, almost 20% from this months top. This may be reducing the
urgency for the Fed to unwind dovish policy.
The US 5-year
breakeven rate fell to its lowest since the end of April yesterday. The
breakeven rate is derived by taking the difference between real bond
yields and nominal ones of the same maturity. This results in an
estimated gauge of inflation that is priced in by markets. So, what
might gold be awaiting heading into the weekend?
Eyes are on
preliminary Markit US manufacturing and services PMI readings for May.
Having said that, persistent dovish commentary from the Federal Reserve
could numb a market reaction to an upside surprise in the data. As such,
the skew might be for a more aggressive reaction to a softer outcome.
That may offer some upside potential for gold if that results in further
bond yield declines.
GOLD TECHNICAL ANALYSIS
On
the 4-hour chart, gold seems to be finding itself within the boundaries
of a Symmetrical Triangle chart pattern. This is a neutral formation,
where the direction of the breakout could precede the next key move. A
climb above the ceiling would likely place the focus on 1890 as XAU/USD
aims for the 1900 handle. If not, triangle resistance can hold and keep
the yellow metal in a consolidative setting.
The Wall