GOLD PRICE OUTLOOK:

  • Gold price climbed to a four-month high, difficult psychological resistance of $ 1900
  • A weaker US dollar, inflation fears and extreme cryptocurrency volatility likely boosted the precious metal
  • World’s largest gold ETF saw inflows accelerate in May as prices rise and Chinese buyers return

Gold prices edged up in Monday’s Asia-Pacific trade, hitting a four-month high at $ 1,887 before falling slightly. Stronger-than-expected US manufacturing and services PMI data released on Friday inflation outlook and thus reinforced the attractiveness of precious metals perceived as a hedge against inflation. Meanwhile, the DXY US Dollar Index hovers near a three-month low of 90.02, lending support to the yellow metal.

Extreme volatility in Bitcoin crypto-currencies encouraged traders to lean back into gold as capital flows sought security and stability. Investors weighed the uncertainties and risks of digital token trading amid doubts surrounding Main Street adoption and regulatory headwinds. Gold offers an alternative to cryptocurrencies for investors looking for assets non-fiat and therefore cannot be diluted by central bank easing.

The return of Chinese buyers provided additional support to bullion prices after regulators relaxed import quotas to meet domestic demand. China’s imports of non-monetary gold jumped to 111.9 tonnes in April, nearly three times the level of 38.58 tonnes in March (graph below). Rising demand from China could help offset the decline in India, which is struggling to recover from a wave of Covid-19 outbreaks.

China’s total non-monetary gold imports – Monthly

Source: Bloomberg, DailyFX

Looking ahead, the United States this Friday core PCE inflation the data will be closely watched by traders for clues on rising prices and their ramifications for the economy as well as the Fed. Core PCE data is a key inflation gauge the Federal Reserve uses to determine Monetary Policy. The April reading is expected to be 3.0% – the highest level since 1992 – in part due to a weak base effect. A higher than expected impression can intensify inflation fears and stimulate market volatility.

World’s Largest Gold ETF – SPDR Gold Trust (GLD) – had three consecutive weeks of net inflows in May. This suggests that more buyers are returning to the bullion market after months of selling. The number of GLD shares outstanding increased by 5.0 million last week, following an increase of 3.7 and 2.5 million in the previous two weeks respectively. Gold prices and the number of GLD shares outstanding have shown a strong positive correlation in the past (graph below). Therefore, an accelerated pace of ETF subscription can be seen as a bullish price signal.

Gold price against outstanding GLD ETF shares – 12 months

Gold Price At 4-Month High As ETF Inflows Accelerate, Bitcoin Crashes

Source: Bloomberg, DailyFX

Technically, gold prices rose higher in an “ascending channel” after completing a “Double bottom”Graphic template. The ceiling and the floor of the “ascending channel” can be viewed as immediate resistance and support levels respectively. Price broke through a key resistance level at $ 1875 (the 50% Fibonacci retracement) and likely opened the door for further upside potential with an eye on $ 1922 (the 61.8% Fibonacci retracement) .

The MACD indicator has a higher trend above the neutral midpoint, highlighting the upward momentum.

Gold priceDaily Graphic

Gold Price At 4-Month High As ETF Inflows Accelerate, Bitcoin Crashes

Chart by TradingView

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

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