The data may suggest that the FED will restrain from their idea of increasing interest rates early next year, however taper uncertainty puts the USD in a weaker position. The market is tired of the sea-saw imposed by the FED. And when this kind of sentiment fills the market, the edge goes to safe-haven assets, mainly Gold.
There are several factors which might weaken the US Dollar this week, one of them is the ongoing negative US trade balance. New US-China trade deal talks are anticipated to remain unchanged with either party willing to back down. US President Joe Biden also labeled the importance of talks with the US allies to present a more united front to Beijing.
Doesn’t sound like the US is willing to cut tariffs and ready to negotiate. Strong US Dollar might play a negative role for normalizing the balance sheet and increasing exports. ISM Non-manufacturing PMI in August is expected to be lower than in July. The California oil spill would result in a deduction of oil from the US oil inventories which historically affects the US Dollar index negatively.
Non-farm employment change, initial jobless claims which will be published later this week are key metrics to watch, these data will identify the commitment of markets to the FED. NFPs of course is the main course of the week, Nonfarm employment change will be the second identifier of the next path of the USD and Gold. The first was during the previous week, when after a firm acclaim of the economy following the projections by the FED, we witnessed a worse than projected jobless claims.
Bridging the gap between the uncertainty and gold, let’s also take a look at some data which might be helpful in identifying your future decision on investing in Gold.
This uncertainty and a deviation between the FED-forecasts and the actual data may be one of the reasons for the market willing to hedge and await for the better times, when there is certainty. By hedge, I mean convert the currency to gold. Central banks of India and Uzbekistan continue their Gold-purchasing streak adding 12.9 and 8.7 tonnes respectively in August. The annual leading Gold-purchasing Central banks are Thailand with 90.2 tonnes, Japan with 80.8 tonnes, Hong Kong with 63 tonnes and Brazil with 62.3 tonnes. Largest sellers so far are Philippines with 32 tonnes, Philippines are producers and their CB mainly purchases Gold from the local Gold miners.
The data above outlines that some central banks are still taking a conservative and cautious approach to what is held in front. The Evergrande case puts a curtain before the market to shade the certainty.
The growing production cost of Gold also is an important indicator. Miners for sure won’t work in loss
AISC – All-in Sustaining Cost is a metric used to reflect the costs associated with the full operation of a gold mine.
As for the technical analysis, there is one important pattern on a daily gold chart which is important to watch – a descending triangle.
A Descending triangle as a general is a signal of the bearish continuation, this is confirmed only when the price breaks below the lower edge of the triangle, the support line. In our case we are above the support line and it seems like the price is willing to touch the upper edge first.
The bullishness of Gold is supported by both RSI and MACD indicators. MACD has already crossed the signal line, indicating a further upside continuation, whereas RSI remains in mid-level since June.
On a 4-hour XAUUSD chart, there is a breakout confirmation from the descending wedge.
As we can see on the chart above, Gold broke above the local dynamic resistance, retraced to retest the resistance as support and is looking to continue the uptrend to $1833 and $1849 levels.
There is another pattern to watch which suggests that Gold can climb further to 1907, it’s the inverse head and shoulders which Gold formed with the help of August 09 net buy positions.
I personally look forward to seeing a completion of the ABCDE correction pattern and a continuation of a bullish run, possibly up to $2200.
Key takeaways are to watch for the economic data, especially the data related to the employment changes. The developments around the US-China trade deal seem to be in the spotlight again and markets will be watching the developments around Evergrande. NFP data would be crucial for the USD, don’t miss the release of these data.