Gold Retraces as Yields Rise on Global Recovery Hopes

Gold’s January 6 decline continues and the precious metal yesterday closed near the 2020’s quarterly lows after the release of the strong US CPI, PPI and Retail sales data. As the stimulus bill proposed by President Joe Biden’s administration is getting closer and is set to be finalized next week according to the New York Times.

The bill is set to increase the inflation as planned by the FOMC, however as the bill acceptance gets closer, Gold which is traditionally an inflation hedge, loses its positions against the US Dollar. The explanation is that investors are betting on global currencies, such as the US Dollar as post-pandemic expenditures will skyrocket local GDP’s. Many banks have reported losses during the pandemic as loans have dropped drastically, while savings increased. The economic and industrial rebound will boost stocks and other exchange traded products.

More investors are looking towards Silver nowadays. Worlds largest asset management firm BlackRock sold SPDR Gold Shares worth $2.7 million, $471 million worth of GLD ETF, and purchased 1.18 millions of SLV (iShares Silver Trust) and $27 million worth of SLV ETF. Still the Gold share of BlackRock’s total assets remains larger than Silver-backed assets, such a switch could signal the consolidation of Gold price and an uptrend continuation of Silver.

From the technical point of view, XAU/USD remains bearish and the recent retest of the local static support as a resistance could drive the price for the precious metal below $1750.

Gold price on Overbit

The 4H chart of XAU/USD highlights the downtrend channel and support and resistance zone of the pair.

Gold price on Overbit
Gold price on Overbit

There are several supports being tested at the moment, which suggest that Gold should retrace and test $1820, such is signalled by the MACD and RSI indicators. Currently, XAU/USD on Overbit is traded at $1784 which is still below the $1786 resistance and is held in a tiny corridor of decisive support and resistance levels. If Gold is able to close above $1786, it might continue the climb towards $1820, if breaks below $1770 then a downtrend continuation will drag XAU/USD towards $1750 and $1714.

All eyes are the US economic data, Building permits in January are expected to be lower than in December, however the positive-looking Initial Jobless Claims will confirm the economic recovery in the US projected by the FED and will boost the US Dollar Index.

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