What’s Happening?

Gold starts the week reeling from a big technical failure on Friday the 7th where a breakout attempt ended in a bearish shooting star as bears rejected a rally. With the focus of trading turning back to politics this week between high level meetings between the US and China/Russia and the French election campaign heating up, gold could be active through the week on shifting sentiment toward political risk.  

Technicals:

For much of the last two months, gold has been range bound swinging back and forth between $1,200 and $1,260. Following a mid-March retest and rebound off of $1,200, gold has settled into the $1,240 to $1,260 area around $1,250, a round number and a 50% retracement of a 2016 decline.

Last Friday, gold popped up through its 200-day average and $1,260 advancing on $1,270.  Enthusiasm quickly turned to despair, however, as gold was slammed back toward $1,250 just as quickly.

RSI falling back toward 50 indicates upward momentum slowing but it remains to be seen if this is a pause within an uptrend or a pending downturn. How RSI reacts around 50 or which direction gold moves out of the current channel may indicate if we are in an uptrend, downtrend, or sideways trend.  

 

Fundamentals

There are a number of factors that could spark trading swings in gold this week, both political and economic.

Friday’s rally was sparked by the US missile strike on a Syrian air base in response to the use of chemical weapons. Although the rally fizzled this time, it did show that it would not take much to jolt traders out of complacency and back into defensive havens. Syria and US-Russia relations remain fluid this week with US Secretary of State Tillerson visiting Russia this week.

Although some tensions over trade with China have eased with Presidents Trump and Xi agreeing on the weekend to a hundred day plan to work on improving the balance of their trading relationship and trying to avert a trade war. Still, North Korea remains a potential flash point.

This week the Bank of Canada is meeting. While no changes to interest rates are expected, any comments in the statement on whether the central bank sees a higher or lower risk of Canada getting sideswiped by US trade policy could have an impact. How well the US manages its relationship with its closest friend and largest trading partner may tell on how President Trump is likely to deal with his adversaries.

Meanwhile, in Europe, it’s less than two weeks to go until the first round of Presidential voting in France. With left wing candidate Melanchon gaining in the polls, it’s a four-way horse race for two spots in the second round.

There is also the potential for movement on the economic front. Fed Chair Yellen speaks late Monday with traders focusing on whether Friday’s weak payrolls but strong unemployment rate has had any impact on thinking at the Fed. Inflation reports for the UK and China, meanwhile, may give some insights into global inflation pressures and trends.