Gold Price Outlook: Will XAU/USD Overturn the Medium-Term Downtrend?

Gold prices touched highest since early January as US Dollar fell US 5-year breakeven inflation rate continued rise from last week XAU/USD eyeing negative RSI divergence as resistance approaches

Anti-fiat gold prices closed at their highest since early January, extending the near-term uptrend since early March. Monday’s performance was the most aggressive advance in over a week. Now, the medium-term downtrend since August 2020 could be looking increasingly vulnerable depending on how price action behaves ahead.

The yellow metal capitalized on a weaker US Dollar, particularly during the Wall Street trading session. This may have been due to rising near-term inflationary woes. The US 5-year breakeven inflation rate touched 2.76%, up from 2.71% on Friday. Ongoing dovish commentary from the Federal Reserve may have been fueling this, likely due to the central bank’s insistence that near-term price pressures are transitory.

That is opening the door to a loser policy for longer than anticipated. Fed Vice Chair Richard Clarida noted that the central bank ‘will give an advance warning’ prior to tapering asset purchases. Gold can be perceived as an anti-inflationary hedge in some cases. Even though most equities on Wall Street closed in the red, the value-oriented Dow Jones Industrial Average did not decline as much as the growth- linked Nasdaq Composite.

With that in mind, XAU/USD may continue benefiting in the short term. The US Dollar is slightly weaker during Tuesday’s Asia Pacific trading session. The US economic docket is fairly light over the remaining 24 hours, likely placing gold’s focus on general market sentiment. A risk for the precious metal is that the US Dollar begins to capitalize on rising bond yields again, which may be a longer-term vulnerability.

GOLD TECHNICAL ANALYSIS

On the 4-hour chart, gold prices appear to have confirmed a push above the falling trendline from August 2020. Having said that, a key zone of resistance immediately ahead is the late January high at 1874. This is as negative RSI divergence shows that upside momentum is fading. That could open the door to a turn lower. Otherwise, a push above 1874 may overturn the bearish technical warning signs.

XAU/USD 4-HOUR CHART

Nasdaq 100 Retreats on Inflation Concerns, Nikkei 225 and ASX 200 Open Higher

Dow Jones, S&P 500 and Nasdaq 100 closed -0.16%, -0.25%, and -0.60% respectively Gold climbed to three-and-half month high as the DXY US Dollar index fell

Crude oil prices extended higher amid demand optimism; Bitcoin tumbled to a three-month low The Nikkei 225 and ASX 200 indexes traded higher, setting a positive tone for APAC markets

Wall Street, Inflation, Gold, Oil, Bitcoin, Asia-Pacific at Open:

The technology sector pulled Wall Street equity benchmarks slightly lower on Monday as investors mulled rising inflation concerns and a Covid-19 resurgence in Asia. The Nasdaq 100 index fell 0.6%, dragged by Tesla (-2.19%), Microsoft (-1.2%) and Apple (-0.93%). The 5-year breakeven rate – a key gauge of bond traders’ inflation expectations – has reached a multi-year high of 2.768%. This suggests that the inflation outlook remains robust as tightened labor market conditions boosted wage growth and rising commodity prices fueled price gains.

Meanwhile, Taiwan reported a spike in Covid-19 cases over the weekend while Singapore returned to quasi-lockdown on Sunday. Escalating pandemic situations in parts of Asia point to a delay in economic reopening and stricter border controls, hinting at a slower pace of recovery.

Rising demand for safety and inflation-hedge assets sent gold prices to a three-and-half month high of US$ 1,866. The return of Chinese buyers after the government eased a quota on gold imports may lend support to prices in the medium term.Crude oil prices edged higher as the summer driving season and a robust recovery in the US brightened the outlook for demand. Energy was the best- performing S&P 500 sector overnight.

Bitcoin extended lower after Elon Musk- the founder of Tesla- hinted on Twitter that the company may have sold or could soon sell its Bitcoin holdings. Prices fell to $ 43,800 – the lowest level seen in more than three months.

Top 10 Stock by Market Cap in the Nasdaq 100 – Daily Performance

Asia-Pacific markets look set to trade broadly higher on Tuesday. Futures in Japan, mainland China, Australia and Hong Kong are in the green. Technology shares in the region could face headwinds following a sour lead on Wall Street, whereas the energy, materials and financial sectors may show resilience.

Japanese Q1 GDP shrank at an annualized rate of -5.1%, more than a baseline forecast of -4.6%. A poorer-than-expected reading may undermine sentiment for the Nikkei 225 index. Looking ahead, the RBA meeting minutes and UK employment change dominate the economic docket alongside US housing starts.

Nasdaq 100 IndexTechnical Analysis

The Nasdaq 100 index has likely formed a bearish Gartley 222 pattern and traded lower since (chart below). The “D” point coincides with the 200% Fibonacci extension level (14,013), therefore serving as a strong resistance level. An immediate support level can be found at 12,900 (the 127.2% Fibonacci extension), whereas an immediate resistance level can be seen at 13,430 (the 161.8% extension). The MACD indicator is trending lower but the signal lines is converging with the MACD line, suggesting that downward momentum may be fading

Nasdaq 100 Index– Daily Chart

Nikkei 225 Index Technical Analysis:

The Nikkei 225 index breached a key support level at 28,357 (the 100% Fibonacci extension. This level now turns to an immediate resistance. The 20- and 50-day SMA lines are about to cross below the 100-day line, potentially forming a “Death Cross”. The MACD indicator is trending lower, suggesting that further consolidation is likely.

Nikkei 225 Index – Daily Chart

ASX 200 Index Technical Analysis:

The ASX 200 index pulled back from record highs after a failed attempt to breach the 261.8% Fibonacci extension level at 7,126. Prices have also breached below a “Rising Wedge”, hinting at further downside potential with an eye on 6,920 (the 50-day SMA) for support. The MACD indicator formed a bearish crossover and trended lower, suggesting that upward momentum may be fading.

ASX 200 Index – Daily Chart

Japanese Yen Analysis: USD/JPY Points Higher as GDP Data Misses Expectations

Japanese GDP growth came in at -5.1% for Q1 vs. consensus estimate of -4.6% Japanese Yen’s recent price action mirroring decline seen in US Treasury yields USD/JPY forming an Ascending Triangle, break higher may test pre-COVID high of 112

Preliminary data for annualized Q1 Japanese GDP growth missed expectations, coming in at -5.1% versus -4.6% expected. The country continues to struggle with COVID-19. The government declared a third state of emergency on April 25. On a quarter-over- quarter basis (QoQ), the print also missed expectations, coming in at -1.3% versus -1.2% seen.Of significant note, demand for domestic in-person services declined along with international demand for local automobiles. Japan is not the only Asia-Pacific country struggling against the virus, as Singapore and Taiwan are also facing breakouts of their own.

USD/JPY has edged lower in recent sessions following disappointing U.S. economic data. Worse than expected readings on consumer confidence and retail sales last week rekindled the notion that Fed policy may remain accommodative for longer, despite the rise in inflation. While Fedspeak continues to remain dovish, investors will look to Wednesday’s FOMC minutes. Further dovish commentary from officials and a lack of “taper talk” may be enough to maintain market sentiment at current levels.

USD/JPY DAILY CHART

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