Gold price rallies past the psychological $1,900; where to next?

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on May 26, 2021
  • Gold price surges to a 4-month high at $1,904.86.
  • The weakening US dollar, currently at 89.91, has boosted the precious metal’s rallying.
  • At 1.56, the 10-year Treasury yields are significantly lower than last week’s 1.69.

Gold price is above $1,900 for the first time since early January. The weakening US dollar is one of the key drivers of the rally. Declining US bond yields are also behind the surge.

Greenback’s downtrend

After being on an upward momentum in the year’s quarter, the greenback has been on a downtrend since the beginning of April. During that timeframe, the US dollar index (DXY) has fallen from 93.43 to the current 89.91.

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The plunge is largely due to the Federal Reserve’s dovish tone. Despite the steady economic recovery, the central bank has insisted that it is still not complete or even. In the recent past, various Fed officials have downplayed the inflation fears. On Monday, Fed officials such as St. Louis’ Fed President James Bullard, Governor Lael Brainard, and Atlanta’s Fed President Raphael Bostic stated that the expected inflation is transitory.  

The lower-than-expected US consumer confidence data has pushed the greenback further down. Economists had expected a reading of 119.2, which is higher than April’s 117.5. However, the figure dropped to 117.2.

Gold price is also finding support in the declining US bond yields. High yields usually boost the US dollar while exerting pressure on the price of precious metals. At the time of writing, the benchmark 10-year yields were at 1.56. That is a significant drop from last week’s high of 1.69. The 30-year Treasury yields are down by 0.33% at 2.25.

Gold price technical forecast

Gold price has recouped the losses recorded this year by moving past the psychological 1,900 for the first time since early January. The precious metal is trading higher by 0.31% at 1,904.86. Earlier in the day, it was at an intraday high of 1,912.49 at an RSI of 74. An RSI above 70 usually denotes that the asset is in the overbought zone. Currently, it is trading above the 25 and 50-day exponential moving averages at an RSI of 65.

Gold price is likely to pull back to 1,895 before soaring further to 1,926; which it last reached on 6th January. However, a move below that support level will invalidate this thesis.

gold price
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