Longs Recommended – Gold Near Three-Week High On Fed Caution And Brexit
On Friday, gold eased slightly as the dollar edged up from recent lows, but the metal remained near a three-week high and was on track for a second straight weekly rise.
The dollar pulled out of a two-day decline today as a report showed jobless claims in the US unexpectedly fell and a stronger-than-expected rise in wholesale sales in April. The data soothed some concerns about the US economy decelerating in the second quarter. The dollar index, which is a strong indicator of gold’s next move because of a the strong negative correlation between the safe haven asset and the greenback, stood at 94.185, pulling away from a trough near 93.400.
However, investor demand is expected to remain strong in the short term, as expectations for Fed rate hikes eased and results of various Brexit polls continue to fuel risk aversion. Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.
Since last Friday, bullion has been on an upswing and has risen nearly two percent this week following last week’s shockingly weak U.S. jobs data and the subsequent cautious tone by Yellen.
The possibility that the United Kingdom may leave the European Union, inviting financial market and economic volatility, also bolstered the yellow metal. According to economists, a Brexit could see gold push towards $1,400 an ounce.
Further, UK and German sovereign debt yields have fallen to record lows, as well as the expansionary, low or negative interest rate monetary policies being pursued in Japan and Europe, added some momentum to the precious metal ‘s rally.
Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.71 percent to 887.38 tonnes on Thursday, the highest since October 2013.
Fig. GOLD D1 Technical Chart
On the daily chart, spot gold is under strong upward pressure, and is currently trading at 1267.42. ADX of 27.41, combined with DI+ above the other lines, indicates continued gains. RSI (14) is almost 60, showing that the buying power is overwhelming. The price is expected to climb even further. The resistance to test is 1281.16.
Buy at 1267.80, SL at 1241.80, TP at 1281.16.