Weak data hits USD! And thanks to Powell! Bulls explode in gold! The 1800 mark is near!

The dollar index rebounded slightly in the Asian session on Tuesday to trade around 91.10, having been hit by weak U.S. economic data the previous day. Spot gold was still trading above $1,790 an ounce after yesterday’s rally, with short-term targets still pointing to $1,800 an ounce. Fed Chairman Jerome Powell’s dovish comments on Monday, which echoed those made at a post-Fed news conference last week, gave the rally momentum.

Gold rallied more than 1 per cent on Monday, helped by a retreat in the dollar and US Treasury yields. Spot gold settled at $1,792.90 an ounce, up $23.77, or 1.34 percent, after hitting $1,797.94, its highest since April 22.

On Monday, COMEX gold for June delivery rose $24.10, or 1.4%, to settle at $1,791.80 an ounce, after hitting an intraday high of $1,798.90. It was gold’s highest close since April 21, according to FactSE data.

Michael Armbruster, managing partner at Altavest, said the fall in U.S. Treasury yields had boosted gold. The yield on the 10-year Treasury note fell to around 1.61 percent in New York on Monday. The pullback in U.S. bond yields further added to gold’s appeal.

On Monday, the dollar fell against a basket of currencies, as the weak data weighed on the greenback. The dollar index.DXY closed at 90.96, down 0.36 percent, after hitting a two-month low of 90.87. A weaker dollar can make dollar-denominated precious metals more attractive to overseas buyers.

Shaun Osborne, chief currency strategist at Scotiabank, said in a research note: “Friday’s sharp rise in the dollar offset the dollar sell-off, but we are currently unconvinced that a stronger and broader correction rally is possible. “The dollar needs further strong gains this week to tilt the risks towards recovery, and the early days are not good for the dollar.”

U.S. Treasury Secretary Janet Yellen said on Sunday, “I don’t think inflation is going to be a problem, but if it is, we have the tools to address it,” Edward Moya, senior market analyst at OANDA, said in the latest market report. Gold subsequently got a boost. Investors have come to believe that the current spike in the inflation report doesn’t necessarily mean a spike in Treasury yields, Moya said.

Gold prices rose further on Monday after the Institute for Supply Management released its manufacturing index. On Monday, the ISM said its manufacturing PMI came in at 60.7 in April, down from 64.7 in March. It also missed expectations, with markets expecting a reading of 65.1.

Powell sings’ dove ‘again

In a speech Monday, Fed Chairman Jerome Powell continued to pour cold water on near-term tapering prospects by again signaling that the central bank isn’t moving away from its accommodative monetary policy stance anytime soon.

Mr. Powell said Monday that the economic downturn had racial and income disparities, and that dividends in the recovery were uneven. Powell stressed that despite the economic rebound, the United States is not out of the woods and needs continued support from policy makers.

“The reopening of the economy has led to stronger economic activity and more creative jobs, but even if the recovery is accelerating, it is still growing at a slower pace for those on low incomes and a chronic gap between rich and poor has held back economic growth,” Powell said. Overall, the economic outlook is bright, but it is not out of the woods at the moment.”

Powell noted that nearly a year after the outbreak, nearly 20 percent of workers in the lowest income group are still unemployed, and only 6 percent of workers in the highest income group are unemployed.

Also on Monday, New York Fed President William Williams, a permanent member of the Federal Open Market Committee, said the data and environment we are currently seeing are “far from sufficient” to warrant a change in the FOMC’s monetary policy stance.

“I am optimistic that the economy is moving in the right direction, but we still have a long way to go to achieve a strong, full economic recovery,” Williams said.

Powell and Williams’ comments were consistent with the Fed’s post-meeting resolution last week.

The Federal Reserve on Wednesday left its benchmark interest rate unchanged at 0-0.25 percent and its monthly $120 billion asset purchase program unchanged, as expected. The Federal Reserve reiterated its commitment to using a full range of tools to support the U.S. economy, thereby promoting the goal of maximum employment and price stability.

Fed Chairman Colin Powell said in a press conference after the meeting that the economy still has a long way to go from the employment and inflation targets; The recovery remains uneven and incomplete, and it is likely to take some time before substantial further progress is made; Economic activity has only recently picked up and it will take some time for that to happen. On inflation, Powell said no one should question the Fed’s determination to control specific inflation and that one-off price increases are unlikely to lead to sustained inflation.

Powell also said a good jobs report doesn’t mean it’s time to start talking about tapering.

Some market participants attributed gold’s rise to investors hunting for bargains after last week’s big sell-off.

Jim Wyckoff, senior analyst at Kitco.com, wrote that gold bulls have regained their recent slight technical advantage.

Wyckoff wrote in a daily research note that gold rose steadily on Monday, “driven by some expected bargain-hunting and external market forces such as a weaker dollar index and stronger crude oil prices.”

Gold rebounded on Monday and briefly approached its first waiting target of $1,800.00 an ounce, bolstering expectations that gold’s bullish trend will continue, Economies.com wrote on Tuesday. Gold needs to gain positive momentum to break above $1800.00 / oz; If this level is breached, gold is expected to rise to the next target of $1838.00 / oz. Economies.com cautions that keeping gold above $1,765.00 an ounce is crucial to achieving these goals.

Jeff Klearman, portfolio manager at GraniteShares in New York, said unprecedented monetary easing and massive government spending will lay the groundwork for gold bulls. Rising inflation fears, rising national debt and a weaker dollar will help gold rebound.

“Gold is poised to break through $1,800,” said Bart Melek, global head of strategy at TD Securities. We’re still on target for $1,900 this year.”

Anil Panchal, an analyst at financial website FXStreet, wrote on Tuesday that gold needed to close above $1,800 an ounce for the day to make further gains. Bulls would target the late February high near $1816 / oz and the Fibonacci 50% retracement near $1819 / oz. The 61.8% Fibonacci retracement near $1,851 and the February high of $1,855.50 will be the key levels to watch once gold remains strong beyond $1,819 / oz.

Chintan Karnani, head of research at Insignia Consultants, said safe-haven demand had also boosted gold prices as India and the rest of the world battled a rising number of cases of novel coronavirus. Karnani believes gold must surpass $1,800 an ounce this week to “continue the short-term bullish trend.”

Chris Weston, Pepperstone’s director of research, said gold needed to rise above $1,797 an ounce for it to be fully bullish.

David Meger, head of trading at High Ridge Futures market, said: “Bond yields remain benign, the dollar is under pressure and the amount of fiscal and monetary stimulus in the market, all of which continue to drive gold and silver higher. “In an environment where we’re in a heightened inflation environment and we’ve seen a lot of stimulus, it’s understandable to expect commodity prices to do quite well.”

Investors are now waiting for Friday’s U.S. nonfarm payrolls data to gauge the health of the U.S. economy. Strong economic data could also push gold higher because it means higher inflation, said Michael Matousek, chief trader at U.S. Global Investors.

“We need to see gold break above $1,800 and stay there for a while, and then maybe start fighting for $2,000,” Matousek said. Gold is considered a hedge against inflation.

Analysts and traders are bullish about gold this week, according to the FX168 weekly financial markets survey published on Sunday. According to the FX168 survey, all traders and analysts surveyed were bullish on the outlook for gold this week.

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