Gold Price Builds Upside Momentum, As Fundamentals Keep Dollar Subdued

Summary:
• Gold is reaping from the dollar’s unfavourable fundamentals, headlined by falling US Treasury yields. Could the momentum face disruption?

Gold prices have inched up in late morning trading in the European session, as the dollar reels under pressure from US macroeconomic data.  Futures gold traded for $2045 per ounce (+0.34%), while the commodity went for $2,035 per ounce, up 0.23% on the spot market.

Gold price will likely attempt to retest the weekly high of $2,053 in the futures market and $2,041 in the spot market recorded on Friday. This means that the commodity currently faces a battle to break the psychological barriers at $2040 and $2050 for the spot and the futures markets, respectively. Nonetheless, that doesn’t seem like an uphill task, considering the current favourable market fundamentals.

Gold usually performs well when Treasury yields fall, and currently, the interest rates on 5-year and 10-year US government bonds are falling. This makes gold a more attractive investment than bonds, since they are considered to be substitutes for each other, especially when hedging against inflation. As a result, the US dollar has become weaker, as shown by its recent fall in the DXY index. The DXY index has been going down since mid-February and recently fell below 104.00.

Gold prices also benefited from the lower-than-anticipated US New Home Sales figures. In January, new home sales in the United States increased by 10,000 to 661,000 units, but this fell short of the projected 680,000 sales. This has added to the selling pressure on the dollar, as the market waits for new momentum from Core Durable Goods Orders for January and Consumer Confidence reading for February.  

Meanwhile, geopolitical developments in the Middle East continue to bubble under, and could provide a new twist to the current XAUUSD setup.

Technical analysis

The RSI on the 30-minute gold price chart favours upward action from the 2030 pivot. This will see the bulls target 2041 on the spot market. Prolonged control beyond that point could sustain gains to test 2045. Alternatively, a fall below the pivot could energise the sellers to target the 2025 support, beyond which the bullish view will be invalid. Furthermore, this could exert pressure to test the second support at the 2021 mark.