Gold in Australian dollar terms has rallied by 13.89 percent in the 2.5 months and could rise further to AUD 2,000 this year on the rising odds of RBA rate cuts.
Westpac, one of Australia's leading banks, believes the economic slowdown could weaken the labor market in the near future, forcing the Reserve Bank of Australia (RBA) to cut rates by 25 basis points in August and November.
Essentially, interest rates are seen falling to a new record low of 1 percent before the year-end.
With the rate cut call, Westpac has ditched the long-held view that the central bank would hold rates at 1.5 percent for a prolonged period. It is worth noting that the RBA put rate cuts bank on the table earlier this month.
Put simply, RBA rate cut talk is only about two weeks old. Indeed, the rates market began pricing a 25 basis point cut in H2 in January. The odds of two rate cuts, however, are rising and markets will likely pencil in the same over the next few weeks.
In fact, markets may begin pricing in the prospects of zero lower bound if China's economic slowdown worsens. Both the PBOC and China's government have recently ruled out "flood-like stimulus".
XAU/AUD, therefore, risks rising to the psychological hurdle of AUD 2000 in the next few months. As of writing, XAU/AUD is trading at $1,883, up 1.82 percent on the week.
Weekly chart
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The higher highs and higher lows, ascending 5- and 10-week moving averages (MAs) indicate the path of least resistance is to the higher side. Acceptance below the 10-week MA, currently at AUD 1,820, would invalidate the bullish setup.
Monthly chart
-636863267120681437.png)
As seen above, RSI has cleared resistance at 63.00, supporting the bullish case put forward by December's bull breakout above AUD 1,768 (May 2018 high).
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