Gold Price Forecast: There’s no other way than up

• Fed funds rate futures turned negative, another reason to buy gold.
• The path to economic recovery will be longer and tougher than believed.
• XAU/USD is biased higher, in the long run, critical resistance at 1,747.45 the year high.

Volatility has remained subdued for most of this week, far from the levels saw in the second week of March, when the coronavirus outbreak extended like wildfire outside China and economies rushed into lockdowns to prevent the spread. Spot gold is ending it with gains around $1,720.00 a troy ounce, confined to familiar levels near multi-year highs.

The bright metal got a boost on Thursday from headlines indicating that fed funds futures turned negative. Investors began pricing in negative US interest rates for early 2021, for the first time ever, even despite FOMC members have repeatedly said that negative rates are not appropriate. Yet, the central bank has pledged to do whatever it takes to maintain the economy afloat throughout the ongoing crisis.

Sentiment improving modestly

Earlier in the week, the commodity eased on the back of hopes, as certain European economies and some US stated started to lift restrictions. Economic reopenings are slowly gearing up, lifting investors’ mood in detriment of the safe-haven metal.

Nevertheless, the shortage of physical gold remains. Mining and delivery issues due to lockdowns and travel bans remain. Furthermore, investors are becoming more and more reluctant to buy paper gold from banks.

By the end of the week, easing tensions between the US and China kept the upside limited for the metal. After US President Trump threatened to impose new tariffs on the Asian giant amid the miss-handling of the coronavirus outbreak. Also, he complained China was not fulfilling phase one quotas. On Friday, however, representatives from both countries held phone talks and vowed to continue to support their trade deal.

COVID-driven terrible data

Meanwhile, macroeconomic data released these days continued to reflect the tough effects of COVID-19 on economic growth, although some US figures surprised to the upside. The official ISM Non-Manufacturing PMI came in at 41.8 in April, much better than the 36.8 expected. The manufacturing ISM index published a week earlier was also upbeat, although the employment sub-component in both crashed to record lows.

Speaking of which, the ADP survey showed that the private sector lost over 20 million positions in April. The US Nonfarm Payroll report for April showed that the total number of lost jobs was of 20.5 million while the unemployment rate jumped to 14,7%, worse than the 14% expected. Average hourly earnings were sharply up, a sign that low-income workers are the ones suffering the most with lockdowns.

The macroeconomic calendar will be lighter next week, as the US will report April inflation on Tuesday, hardly a concern these days, and April Retail Sales on Friday seen down by 10.0%. By the end of the week, the country will publish the preliminary estimate of the Michigan Consumer Sentiment Index for May, foreseen at 72 from 71.8 previously.

Spot Gold Technical Outlook

Spot gold hovers near its weekly high ahead of the close, maintaining its bullish technical stance. The weekly chart shows that the 20 SMA continues to head firmly higher far below the current level at around 1,600 while well above the larger ones, which also advance. Technical indicators have stabilised within positive levels, reflecting that buyers largely outpace sellers.

According to the daily chart, the risk is also skewed to the upside, as the metal has continued to seesaw around a bullish 20 DMA, holding above it this Friday. Technical indicators, in the meantime, remain within positive levels but lacking directional strength.

The immediate support is 1,711 ahead of the 1,700 level, followed by the weekly low at 1,691.84. A break below this could result in a steeper decline toward the 1,670 region. 1,722 is the immediate resistance ahead of 1,738.90 while beyond this last, the commodity has chances of retesting the mentioned yearly high at 1,747.55.

Gold Sentiment Poll

According to the FXStreet Forecast Poll, the bright metal is seen extending its advance next week, but changing the course in the monthly and quarterly views, then bearish. On average, however, gold is seen holding on to the 1,700 region.

The Overview chart is giving the first sign of warning about the bullish potential, as only the weekly moving average maintains its bullish slope. The larger ones have turned flat after pulling back from recent highs. The number of those betting for a slide is quite a few, suggesting that they are just waiting for the next big catalyst before compromising with a certain direction.

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