Weak US dollar supports gold prices and other commodities. Will Trump strengthen the greenback?
$1345 remains the key support if bulls want to sustain the ongoing rally
Is a pullback toward $1300 possible?
Gold prices continue marching higher reaching the highest levels since July 2016 mainly on the back of an immense sell-off seen in the US dollar. However, having the US dollar so oversold one cannot preclude a sharper increase fuelled by a profit-taking wave and if so it could usher in a retreat across commodities.
Gold along with other metals has tend to correlate quite well to the US dollar index. A divergence with the bond market deserves attention alike.
Knowing that the US dollar has become the only game in town with regard to a rally seen in the commodity block the key question is what will happen next. As the ECB meeting is already done politics could begin playing a more important role. Let us recall the latest comments from US Treasury Secretary Mnuchin who explicitly backed up the continued decline in the US dollar. On the other hand Donald Trump expressed his own views on this topic yesterday claiming that the USD should benefit going forward due to growth acceleration. He also added that the US currency remains the sole reserve currency while other are not even close. Will these comments inject more energy the US dollar and thereby weaken gold?
Given a longer-term backdrop gold prices are already close to a key supply zone. However, once the price closes a weekly candlestick above $1355 another rise could be expected. Having said that, it should not be an easy task for bulls albeit if they do that it could open the way toward $1400.
Gold prices are hovering around a key resistance. A weekly close could be conclusive.
In turn, an hourly time frame suggests that gold prices are trying to recoup yesterday’s losses (a move sparked by Trump’s comments). Until the price remains above $1345.45 there is still potential to continue gaining. Nonetheless, if this level is broken a more severe corrective move could back on the table.
$1345 seems to be a crucial level to watch for.
Assuming that a correction could occur it’s worth considering how low the price would go. The nearest targets might be set at around $1316 and $1301 and if the price goes there it could be a turning point, this is especially true when RSI slips into the oversold zone.
A possible pullback could go as low as $1300.