XAU/USD price has broken back up above the $2,000 level after dip-buying in the $1,960 vicinity on Thursday, leading to a new leg higher for the precious metal. Falling Treasury yields and a weaker US Dollar supported Gold’s uptrend. The release of Durable Goods Orders and PMI data later on Friday could dictate the metal’s next move.
US Dollar Sinks To New Monthly Low Before Recovery
Markets tick over with no one major theme driving price action. The Dollar Index (DXY) has recovered from new monthly lows set on Thursday in the 101.90s, forming a bullish hammer candlestick on the daily chart suggesting a reversal after March’s sharp decline. However, without a strong bullish confirmation day to back it up, it’s still too early to say. If the US Dollar does start to reverse higher, however, it will be a negative factor for XAU/USD.
The next data release to impact the US Dollar will likely be Durable Goods Orders on Friday, at 12:30 GMT, followed by the US Manufacturing and Services PMI at 13:45 GMT. The Federal Reserve’s James Bullard is also scheduled to speak at 13:30 GMT, and his views on inflation and the future trajectory of rates may also impact prices.
Central Banks Diversify Into Gold
Central banks in parts of the world not aligned to the West are ‘de-Dollarising’ due to geopolitical polarization and diversifying into Gold instead, according to a recent report by French bank Société Générale.
“The longer the Russia-Ukraine conflict endures, the faster countries not aligned with the West will be willing to isolate themselves from the USD. This will encourage central banks to continue their strong Gold purchases,” says the report.
“The central banks of non-aligned countries should continue to de-Dollarise their portfolios and keep buying Gold (6% of our allocation, unchanged), which lower real yields will later back,” Soc Gen adds.
Gold Gently Pulls Back After Breaking Above Key $2,000 Level
XAU/USD trades at $1,993 at the time of writing. It is in an uptrend on a medium and short-term basis, so bullish bets are favored. On Thursday, it breached the key $2,000 psychological mark but has undergone a gentle pullback overnight.
The pair may be forming a bull flag pattern on the 4-hour chart shown below, consisting of a flagpole that began at the March 22 lows and the flag composed of the correction that occurred between March 23-24 and is still underway. If the Gold price breaks above the $2,003 high of the flagpole, it will confirm and activate the pattern, leading to a probable run-up equal to the pole. In this case, that will suggest a target of $2,050. A more conservative target would be at the 61.8% Fibonacci extension of the pole, at $2,023.
The Relative Strength Index (RSI) momentum indicator supports the current recovery climate and rises more or less in line with price, showing no bearish divergence.
The next resistance cap lies at Monday’s $2,009 high, where a confluence of technical levels presents a tough ceiling. A decisive break and close above $2,010 would be the breakthrough necessary to invigorate bulls to continue the uptrend to new heights.