(Kitco News) – Even as the U.S. dollar continues to show strength this week, the bull market for gold has yet to peak, according to Fawad Razaqzada, Market Analyst at StoneX Bullion.
In an article for City Index published Monday, Razaqzada acknowledged that gold’s recent uptrend faltered in the face of USD strength at the end of last week, but said that reports of the yellow metal’s demise have been exaggerated.
“As the precious metal pulled back from its earlier record peak, it displayed mild bearish price action, leading to some calls that it may have peaked,” he said. “While there is some doubt about its short-term technical prospects, I am unequivocally convinced that its long-term trajectory remains bullish, and it is conceivable that prices could soon reach unprecedented highs again.”
For gold to set fresh highs, however, Razaqzada said the greenback must resume its downward trajectory.
“Despite the Federal Reserve maintaining a dovish stance, the dollar gained strength, bolstered by external factors such as the unexpected rate cut by the Swiss National Bank and dovish stances from the Bank of England and Reserve Bank of Australia,” he said. “Drops in the pound, Aussie dollar, and euro further boosted the dollar's ascent, alongside encouraging US economic indicators such as the latest PMIs, existing home sales, and unemployment claims.”
“However, these indicators are unlikely to dissuade the Fed from considering rate cuts in June,” he added, “particularly if inflation remains subdued.”
Looking ahead, Razaqzada said that the main risk event this week for both the greenback and gold prices will be the Core PCE Price Index on Friday, after which the market’s attention will turn to the March Non-Farm Payrolls and CPI reports early next month.
“The March US data, scheduled for early April release, holds considerable sway over the dollar's trajectory,” he said. “Weakness in these figures, especially in forthcoming inflation data, could precipitate a sustained decline in the dollar, potentially lending support to gold.”
Turning to the technical picture, Razaqzada said that all indications point to gold continuing its recent uptrend in the medium and longer term, even though profit-taking and USD strength have sapped its momentum in recent days.
“Establishing higher lows and higher highs before reaching new record highs last week, the long-term trend is clearly bullish,” he said. “A deviation from this sequence would signal a shift to a bearish outlook. The most recent higher low at $1984 in February would mark a potential conclusion to gold’s long-term bullish trend, if breached.”
He added that as long as support at $1984 remains intact, gold’s recent short-term weakness shouldn't significantly affect the long-term technical outlook, and that many buyers are waiting in the wings to jump on the dips.
“Former resistance levels could become support upon retesting, notably the $2075 to $2081 range, which had served as significant resistance in the past few years,” Razaqzada wrote. “Now, it is a crucial support area to watch.”
Another pivotal level he’s watching is the December high of $2146, which is now serving as a “reference point” for short-term directional trades.
“Breaking below it could trigger a larger correction towards that $2075 to $2081 support range, where it would potentially present decent buying opportunities,” he said. “Key resistance levels include $2195, where gold struggled to hold above during its recent record high breakout, with the subsequent target at $2222 – the most recent (record) high.”
The yellow metal’s tug-of-war with the greenback is continuing on Tuesday with spot gold at $2176.88 per ounce at the time of writing, up 0.23% on the session but well off the earlier high of $2,200.17 it set shortly before 7 am EST.
Meanwhile, the U.S. dollar index continues to see volatility, currently flat on the session at 104.11 after hitting a low of 104.04 at 6:30 am EST.
