GOLD rallied this week on the back of Janet Yellen's testimony to the US Senate and Joe Biden's inauguration as the 46th President of the United States. Dr Yellen in her confirmation hearing as the new Treasury Secretary forwarded the case for more fiscal stimulus to relieve the pandemic-battered US economy, indicating that she favoured much of President Biden's US$1.9 trillion package.
Gold prices had earlier been weighed down by carry-over weakness from last week's spike in 10-year Treasuries and a rally in the dollar. The start of the week saw prices collapse to a test support above US$1,800 an ounce before buying pressure led the precious metal to rally in early morning Asian trading.
Yet after a strong positive initial reaction to the president's US$1.9 trillion stimulus plan, gold lost some steam in early trading in Asia on Friday, as investors turned to the difficult negotiations ahead.
The ECB, at its monthly policy meeting on Thursday, as expected, left its benchmark deposit rate unchanged and reaffirmed the size of its pandemic emergency purchase programme (PEPP) at 1.85 trillion euros. However, the ECB stated that the PEPP might not need to be used in full should favourable financing conditions be maintained. German Bund and Treasury yields rose, and traders debated how they may weigh on gold after a hawkish ECB policy statement. Upbeat comments from ECB president Christine Lagarde were also bearish for gold.
Technical analysis for Comex February gold futures (GCG21)
Following last week's sell-off, the benchmark gold contract managed to hold its ground above a key support of US$1,800, as traders expecting an increase in fiscal stimulus to outweigh other bearish factors weighing on gold found a buying opportunity.
The recent rebound of US treasury yields has however made the short-term narrative a little tricky.
Gold prices pulled back slightly on Friday morning in Asia despite breaching resistance at the US$1,863 zone, showing a little bit of hesitation to move ahead. Technically, the massive bounce from US$1,800 this week and a break through the 200-day EMA is bullish. The gold contract pause at above US$1,860 may give gold the support it needs to ascertain whether the perceived inflation is really coming down the road. Prices need to close above the 50-day EMA to show a visible bull.
The benchmark GC Feb contract had been closing above the 200-day EMA last week. The moving average is offering a "floor for the market". Consolidation above the support would indicate the market may be trying to form some type of bottoming pattern, and at this point may be simply building up enough momentum to continue the longer-term uptrend. The longer-term bullish traders can be expected to take advantage of a "buy-and-hold" type of strategy due to gold's attribute as a safe-haven and the massive fiscal stimulus.
The sell-off to long-term support at US$1,800 unearthed some buying pressure with gold contracts rebounding off the low. To sustain its bullishness, gold needs to hold its own above the US$1,860 resistance zone. The major trend of gold is still bullish and deep pullbacks may be considered as opportunities. The major support for the GC Feb contract lies at US$1,800 and then US$1,767. Immediate resistance is at US$1,900 and US$1,970, followed by US$2,000.
- The writer is senior manager, commodities, Phillip Futures
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