Gold Price: Potential bullish breakout amid a weakening US dollar

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed in the… read more.
on May 6, 2021
  • Gold price has recouped Wednesday’s losses but remains range-bound below $1,800.
  • The decline in the US dollar has acted as a bullish catalyst for the precious metal.
  • The market is still digesting Yellen’s remarks on the need to hike interest rates.

Gold price has extended the previous session’s gains by trading at 1792.91; up by 0.33%. On Wednesday, it had hit an intraday low of 1770 before recouping the losses. The precious metal has been range-bound for three weeks now amid a positive market sentiment and reflation talks.

Talks of a hawkish Fed policy

The Federal Reserve has maintained interest rates unchanged at near zero. Last week, the US central bank’s Chair stated that while the economy had recovered significantly, it is still incomplete and uneven. Jerome Powell noted that the expected inflation would be transitory.

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However, the Treasury Secretary’s remarks on Tuesday revived inflation concerns. Janet Yellen, who once served as the Fed Chair, stated that the central bank may need to start hiking interest rates to prevent the US economy from overheating. Granted, she clarified that her comments were neither a recommendation nor advice to the Fed. While she is not in a position to direct the central bank, her opinion is powerful enough to impact the market. A hawkish policy would be a bearish catalyst for gold price.   

Weakening US dollar

Gold price has an inverse correlation with the value of the US dollar. As such, a weak dollar creates a bullish environment for the precious metal. On Thursday, the dollar index was down by 0.25% at $91.04. This was a decline from its intraday high of $91.38. The weakening of the greenback comes at a time when the risk appetite is improving. Subsequently, the demand for the currency as a safe-haven has dropped. Besides, the US treasury yields are on a decline. The benchmark 10-year bond yields are down by 0.33% at 1.56.

Gold Price Technical Outlook

Gold price has remained range-bound since mid-April. Spot gold has been trading between 1,763.07 and 1,799.66. At the time of writing, the price was up by 0.33% at 1,792.91. Besides, on a three-hour chart, it is above the 20 and 50-day exponential moving averages.

Over the past month, gold price has surged by about 6.87%. However, after range-bound trading for three weeks, it will need to move past the important resistance level of 1,800 to gather enough bullish momentum.

In the meantime, I expect the precious metal to remain within its current range. This thesis will be invalidated by a move below 1,755.

gold price
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