International spot gold on Monday (April 5) traded around $1,725 an ounce, down 0.24% in a tight range. The latest ISM non-manufacturing PMI, released on the same day, was also very strong, hitting an all-time high. The week’s most notable macro events include the March 16 FOMC minutes on Wednesday, March 17 FOMC minutes and Fed Chairman Powell’s speech. These two factors are expected to drive market volatility this week.
The Institute for Supply Management’s non-manufacturing PMI rebounded to 63.7 last month, also helped by warmer weather, the highest level in the survey’s history, according to data released on Monday. The survey also suggests that the economy has been strongly boosted by a dramatic improvement in public health and the White House’s $1.9 trillion pandemic assistance plan.
The new high in the ISM service index doesn’t mean that these companies are doing better than at any time in their history, just that the improvement was particularly marked between February and March, when the service sector was dragged down by unusually harsh winter weather in Texas. And while customer demand has rebounded sharply after the epidemic has leveled off, the main concern remains rising prices related to supply shortages.
Last week, U.S. President Joe Biden unveiled more than $2 trillion in infrastructure plans in Pittsburgh. The plan includes about $2 trillion in spending over eight years and an increase in the corporate tax rate that pays for it to 28%. Biden called it a vision to create “the strongest, most resilient, most innovative economy in the world” and millions of “good-paying jobs.” Typically, the introduction of large stimulus packages is good for gold, as it helps inflation rise. But for now, the focus is on a positive boost to the economic recovery from the stimulus package, which will instead boost the dollar and thus weigh on gold.
Technical Analysis: Failure to close above the 21-day EMA EMA of $1730 should support bearish targets towards the March bottom near $1675. On the 4-hour chart, the 100-dma sits below gold, temporarily limiting the downside. At the same time, the relative strength index (RSI) on the same cycle chart is trading sideways around 60, indicating that gold remains neutral in the short term with a bullish bias.
Initial resistance is at $1,730, then $1,735. If a four-hour candle chart can close above this level, gold could push on to the next important resistance level at $1,745.
On the downside, the first support stands at $1725 (100 SMA), then $1720 (static level, 50 SMA) and $1708 (20 SMA).
Outlook: Investors await the minutes of the Federal Reserve’s policy meeting on Wednesday and watch for progress on President Joe Biden’s $2 trillion infrastructure plan.
Colin Cieszynski, chief market strategist at SIA Wealth Management, said: “Gold has fallen to quite low levels in the past week, so we have seen a technical rebound. “I don’t think there are a lot of tailwinds that are going to really push gold back into solid bull territory.” Cieszynski added that for him to be fully bullish on gold, gold would have to move back above $1,780 an ounce.
While Wall Street has been clearly bullish on gold lately, many analysts see the current move as a short-term correction rally. Darin Newsom, president of Newsom Analysis, said he is bullish on gold in the short term, but he is watching to see if gold can overcome resistance at $1,756.10 an ounce. Gold continues to face stiff competition against the dollar, which appears to be in a long-term uptrend, Newsom added.