Gold prices have started the week on a softer footing though remains above the March highs for now following the rally off the 1700 level over the last fortnight. The 1700 level has now been tested twice, potentially carving out a double bottom at the area, suggesting the potential for a broader recovery in the near term. The decline in the US Dollar over recent weeks has helped foster the recovery in gold prices as traders dial back their Fed tightening expectations in response to a slew of dovish commentary from various Fed officials.
Despite rising inflation expectations over Q1, the Fed has maintained that it does not foresee any change in policy over the year and has reaffirmed its view that any rise in inflation is likely to be temporary in nature. The latest wage growth data for March, which came in at -0.1%, has helped further dilute any tightening expectations, adding further support or gold prices. However, despite the support created by the downside move in the Dollar, the continued rally in equities prices is offsetting demand for gold.
This week traders will be watching US CPI data due on Tuesday. Any strength in this reading could fuel a reversal in the recent Dollar decline, which would drag gold lower again. However, if the reading undershoots expectations this could see the current Dollar move deepen, sending gold prices higher near term.
As with gold, silver prices have seen a return to upside over the last two weeks with price recovering off the 24 handle lows to trade back above the 25.0745 level. The Dollar decline has helped fuel an uptick in demand for silver which has also been helped by recent strength in manufacturing data. As the UK and US press ahead with their re-opening schedule, the outlook for silver remains favourable in the near term with demand expectations lifting.
The rally in gold prices off the 1700 level has seen the market moving back up towards the 1763.88 level. With the bear channel top sitting overhead, this is a key resistance area for gold and while price remains below, the outlook is geared towards further losses. However, a break above that level will open the way for a teat of the 1826.71 level next.
Silver prices have been trading lower within a falling wedge formation over the decline from 29.9383. However, following the buying which kicked in at the 24. Level, price has since broken above the wedge resistance and the 25.1018 level. While above here, there is room for a further push higher back towards the 27.4502 level. However, should this prove to be a false break, the next downside level to watch is the 22.3205 level.
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