Gold has started to attract attention in recent days and may continue to be active in the coming days.
Increasing political risk has renewed interest in defensive havens like gold, while US data due later in the week, particularly the non-farm payrolls, may have an impact on trading in the US dollar and therefore a follow-through impact on gold.
Technicals
Gold, along with many other currencies was crushed by the big US dollar post-election rally. Since bottoming out and bouncing through December and January, gold has settled into a rising recovery channel for the last several months.
Earlier in May, gold established support at a higher low near $1,215 and since then an upswing has been underway. A normal consolidation phase around $1,250 has been resolved by a breakout over $1,260 that completed a symmetrical triangle.
Meanwhile, the RSI has regained 50 confirming that momentum has turned back upward. Clearing the 62% retracement level suggests that gold could retest its November high over the longer term. Initial upside tests may appear near $1.275 then $1,290 and $1,300.
Should we see a pullback, however, initial support may appear near $1,256 the 62%Fibonacci retracement level then $1,250 and the 200-day average near $1,243.
Fundamentals
Diverging fundamentals could tug gold in different directions and potentially create trading opportunities through the week.
Interest in gold has been reignited by an end to the complacency and expectations of stability in Europe following the French election and increasing recognition of growing uncertainties out there.
The latest rally has been sparked by a poll showing the Conservatives lead in the UK election dwindling to five percentage points. With the 8 June election date approaching rapidly, complacency about the result has quickly turned to concern and could impact gold through the week.
Political turmoil in the US may also continue to impact trading in gold. President Trump returns from his overseas trip where results and relations have been mixed, to a Washington awaiting testimony from former FBI Director Comey to Congress.
It also could be an active week for the US dollar, which generally tends to trade in the opposite direction to gold. Part of recent gold gains can be attributed to a weakening dollar. This week, the greenback could be active as speculation surrounding a potential June rate-hike ramps up. Some had thought that soft US economic data could put the Fed on hold, but with Q1 GDP getting revised upward to 1.2% from 0.7%, strong ADP or non-farm payrolls could add to the hawkish Fed case. As it is, I still think the Fed will probably raise rates in June, because the prospect of a government shutdown in the fall pretty much rules out September.
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