Gold – XAU/USD Analysis - May 05, 2021

20 & 50 EMA Crossover!

Gold closed at $1778.25 after placing a high of$17798.95 and a low of $1770.35. Gold prices finished lower on Tuesday amid the hawkish comments from U.S. Secretary-Treasurer Janet Yellen.

In a webinar hosted by The Atlantic, Janet Yellen warned that interest rates might have to rise to stop the U.S. economy from overheating even though the additional spending was relatively small relative to the size of the economy. These comments from Yellen came in as more U.S. President Joe Biden’s economic investment programs came in line. These comments triggered a sell-off in tech stocks and pushed long Treasury yields higher, which weighed on precious metal prices. However, in late trading hours on Tuesday, Janet Yellen walked back from her comments made earlier in the day that rates might need to rise. In late trading hours, Yellen said that she was neither predicting nor recommending that the Federal Reserve raise interest rates due to President Biden’s spending plans.

She added that she does not think that there will be an inflationary problem, but if there is, the Fed can be counted on to address it. These remarks and U-turn in Yellen’s statement came in after lawmakers debated the merits of the administration’s spending proposals, which many Republicans think are too costly and risk stoking inflation. Yellen said that she expected any near-term increase in inflation will be temporary and echoed remarks from Fed Chair Jerome Powell that the central bank was not worried about a persistent rise in inflation. He expected that rising prices over the coming months would subside.

Yellen downplayed the concerns that President Biden’s two new economic plans, one focused on infrastructure spending and the other on families, would cause uncontrolled inflation. Whereas, she believed that the proposed spending plans of Mr. Biden, like worker training, free community college, and research & development, would help make the U.S. economy competitive and more productive.

The remarks from Yellen were unusual because White House officials typically refrain from commenting on monetary policy. Such a norm was started in the Clinton administration until President Trump began urging Powell to cut rates before the pandemic.

However, in late trading hours, Yellen said that it was entirely up to the central bank to manage monetary policy. It was not something she was going to give opinions about. After these comments, the risk sentiment picked up the pace and weighed on yellow metal prices.

On the data front, at 17:30 GMT, the Trade Balance from the United States for March remained flat with the expectations of -74.4B. At 18:52 GMT, the IBD/TIPP Economic Optimism dropped to 54.4 against the expected 56.1 and weighed on the U.S. dollar. At 19:00 GMT, Factory orders in March also declined to 1.1% against the predicted 1.3% and weighed on the U.S. dollar. Furthermore, on Tuesday, the San Francisco Federal Reserve Bank President Mary Daly said that the U.S. economy was a long way from the Fed’s goals of full employment and 2% inflation, and it was not the time yet to start talking about reducing the recovery support. She said that when Fed will reach closer to achieving its goals, tapering off a 120 billion dollar bond-buying program might start. She added that it was a long way to go, and Fed was not out of the woods yet, and she said that the U.S. only had a couple of months of really good data but was far from reaching its goals. These comments from Daly also added pressure on gold prices on Tuesday.

Gold Intraday Technical Level

Support Resistance

1766.09 1794.69

1753.92 1811.12

1737.49 1823.29

Pivot Point: 1782.52    

Gold - XAU/USD - Technical Outlook 

On Wednesday, the precious metal gold is trading with a neutral bias at 1,785 level, facing immediate resistance at 1,794 level. On the 4-hour timeframe, the precious metal gold has formed series of bearish candles, which in technical terms are known as three black crows and suggest bearish sentiment among gold traders. On the higher side, gold has the potential to go after the next resistance area of 1,797. On the 4-hour timeframe, gold continues to hold over 20 & 50 periods EMA, which extends solid support around 1,763. Besides, the RSI and MACD exhibit bullish bias as the RSI and MACD holds in a buy zone. Gold’s immediate resistance stays at 1,792 and 1,797, while support stays at 1,771 and 1,764. All the best!