• Fed’s gloom outlook and fears of a US second wave of coronavirus boosted the metal.
  • US Secretary Mnuchin dismissed the chances of another shutdown, plans more relief.
  • Gold broke above a daily descendant trend line, now poised to retest the yearly high.

Gold prices have recovered their shine this last week, as risk-aversion boosted demand for the safe-haven metal. Spot gold hovers around $ 1,740 a troy ounce as the week comes to an end. The subdued demand for the greenback has kept gold underpinned ever since the week started, but central banks pledging to keep pumping stimulus into the economies for sure is the main reason behind gold’s strength.

The metal only eased on Thursday, when the dollar appreciated on the back of panic selling in Wall Street. The DJIA lost over 1800 points, its worst day in over three months after the US Federal Reserve hinted that it expects a long way ahead of any economic recovery. Policymakers are still quite uncertain over the economic developments, with the pandemic being the main reason behind the absence of a clearer picture.

US economy to remain open despite possible second wave

The Fed announced that it will continue to buy Treasurys and mortgage-backed securities at least at the current pace, while rates are foreseen on hold through the next two years. The only thing sure, then, is that policymakers will continue to inject liquidity into the system, which in turn, would mean persistent demand for the bright metal.

And is not just central banks. US Secretary Mnuchin said on Thursday that another relief package is needed and that the economy can’t be shut down again, despite mounting fears of the second wave of coronavirus contagions in the country. Most cases are being reported in Florida, California, and Texas, although they are also on the rise in New York.

With growth’s expectations down and coronavirus cases on the rise, fears will remain, which means that risk-aversion will likely limit the downside for the metal.

The macroeconomic calendar had little saying on market movements, as the market has long ago priced in dismal numbers within the lockdowns period. Still, US inflation excluding food and energy prices was up by 1.2% in the year to May, almost half what it was before the pandemic. Also, Initial Jobless Claims for the week ended June 5 came in at 1.54 million, in-line with the market’s forecast, although Continuing Jobless Claims remained well above 20M by the end of May. On a positive note, the preliminary estimate of the June Michigan Consumer Sentiment Index, which improved to 78.0 from 72.3, beating the market’s expectation.

The upcoming week will see US Federal Reserve Chief Jerome Powell testify before Congress on Wednesday and Thursday. Mid-week, the US will publish May Retail Sales, which are seen up by 5% after collapsing by 17.2% in the previous month.

Spot Gold Technical Outlook

XAU/USD is ending the week above a daily descendant trend line coming from this year high at 1,765.19. It is having some hard time to post some follow-through, as it spent the last two days hovering around it.

In the weekly chart, the price remained far above all of its moving averages, while technical indicators remain within familiar levels and above their midlines, not enough to confirm a bullish extension but clearly suggesting limited selling interest.

Daily basis, the metal is neutral-to-bullish, as it found support in the last two trading days in a flat 20 DMA, while the larger moving averages head north far below the current level. Technical indicators, in the meantime, hover around their midlines without clear directional strength.

The weekly high at 1,744.70 is the immediate resistance ahead of 1,765.20. Beyond this last, the metal could approach the 1,800 level. The immediate support is the 1,722 price zone, where currently stands the mentioned 20 DMA. Below it, the next relevant support is the 1,700 price zone.

Gold Sentiment Poll

The FXStreet Forecast Poll indicates that investors are not fully convinced of sending gold prices towards fresh multi-year highs, although it’s hardly seen falling far below the 1,700 level.  The sentiment is bearish in all the time-frame under study, as, on average, it’s seen below the current level, with bears holding the majority in all cases.

In the Overview chart, the moving averages have turned north, reverting their bearish momentum, although the bullish potential seems to fade as time goes by, with the quarterly moving average being the one with the weakest slope.

Related Forecasts:

EUR/USD Weekly Forecast: Bulls paused but didn’t give up

AUD/USD Weekly Forecast: Finally turning down under? Australian jobs, US coronavirus data eyed

GBP/USD Weekly Forecast: Will Bailey bail out the pound after Powell's punch? Brexit, coronavirus eyed

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