Stimulus May Propel XAU/USD Past Resistance
- Gold suffered an abrupt decline to the $1,450 level two weeks ago
- Moving off support, gold may continue higher in the days ahead as governments and central banks flush the global economy with stimulus
- A break above the recent high around $1,700 would be an encouraging sign for bulls looking to pursue an extension higher
Gold Price Outlook: Stimulus May Propel XAU/USD Past Resistance
Gold has experienced significant volatility alongside other markets as the coronavirus looks to hamstring the global economy. To calm speculative activity, the CME raised margin requirements on gold futures by 19.3% Wednesday, the first such move in over a decade. Regardless, gold prices may continue to climb in the weeks ahead as governments and central banks flush the global economy with stimulus and volatility ebbs.
Gold Price Chart: Daily Time Frame (May 2018 – March 2020)
Since investors typically view gold investments as a hedge against inflation, the expansion of the Fed’s balance sheet – alongside other major central banks – should act as a consistent tailwind for gold prices. Together with the unprecedented stimulus package from the United States government, the ingredients for inflation are present. Therefore, assuming risk aversion does not spark further liquidation in the gold market as it may have last week, gold could look to reclaim recent highs around the $1,690 and $1,700 levels.
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To be sure, bulls will look to employ nearby support areas to keep price afloat in the interim. To that end, the nearby Fibonacci level at $1,585 may offer early assistance should prices begin to fall again. Secondary and tertiary support should materialize at the $1,550 and $1,450 levels as it did in the last three weeks. For the time being, it seems as though $1,450 marks the bottom of the recent retracement so a break beneath this leave would undermine my bullish bias and could suggest further selling is in store. In the meantime, follow @PeterHanksFX on Twitter for updates.
–Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX