After a mild two-week rebound, the US dollar has started this week on the backfoot.
The dollar index started the day weaker and extended its falls as US session got underway. As a result, we have new session highs for the likes of GBP/USD
and gold, while the USD/JPY was starting to finally move lower after spending several days in tight consolidation near 106 handle.
Gold has been consolidating its gains in recent weeks as traders wondered whether buying gold at these elevated levels still made sense. Meanwhile, some investors have undoubtedly been looking forward to the Federal Reserve meeting and are understandably cautious.
The Fed is almost certain to maintain its dovish stance on monetary policy on Wednesday, as will no doubt be the case for the Bank of Japan and the Bank of England on Thursday.
Given the fact coronavirus is still ging strong and there are no effective vaccines approved yet, these central banks will likely signal to the market that they will be ready to provide more stimulus if needed. This should be music to the ears of gold investors, for the precious metal is a noninterest-bearing asset and its appeal tends to rise when expectations over interest rate hikes fall. So, this remains the perfect environment for gold and silver to thrive as debasement of fiat currencies continue.
Against this backdrop, gold and silver remain fundamentally supported.
Gold’s strength was tested many times over the past few weeks as the bears attempted to push it back down below its old record high of $1920ish that was hit in the year 2011. The sellers had many attempts to break this level down. However, as they repeatedly failed to do so, prices have charged higher again, breaking in the process resistances such as $1940:
Source: TradingView.com and ThinkMarkets
The daily chart of gold is now looking quite constructive again, with prices breaking above a short-term bearish trend line, after reclaiming $1940. What’s more, bearish-looking price candles continue to fail to precede big price falls. This suggests that the sellers are continuing to get trapped. So, I am expecting gold to rip higher in the coming days, possibly as early as this afternoon. It will be nice to see gold hold above Friday’s high of $1954ish, from a bullish point of view.
That said, I am prepared to admit I have got this wrong if the chart tells me. The line in the sand for me is if gold goes back below that key $1920 support decisively. If that happens, then I will drop my short-term bullish view on gold.