The gold market could be gearing up for further upside in the week ahead. The beginning of Q2 has brought with it dollar weakness and an easing of treasury yields which are both bullish for the yellow metal. The retreat in yields and the greenback could continue, and any further declines in these assets could keep the gold bulls moving the market higher.
The drop in yields below the psychologically important 1.60% level has fueled buying in gold and could continue to boost investor optimism in the class. The yield breakdown has allowed spot gold to move above its 50-day simple moving average for the first time in months. This turn higher in the moving average could keep shorter-term traders and speculators looking for market entries. This momentum play could keep the metal on the offensive and it could potentially target ist 100-day moving average in the short term, around the $1809 level.
With increasing concern over inflation and many feeling that gold has yet to reflect the rising price risk in its price, the market could certainly have significant room to run higher. If the 100-day moving average is taken out in the week or weeks ahead, the bulls could stage a raid rally higher back to previous all-time highs or beyond.
The Federal Reserve is set to start its media blackout period this week ahead of its next policy announcement on April 28th. The lack of any Fed speakers could keep a degree of pressure on the dollar and thus could keep some upside momentum going in the yellow metal.
Before any sustainable move higher is made for gold, however, the market may want to feel more comfortable that the recent rise in treasury yields is contained. This could mean that the Fed will be battling the market on their respective inflationary outlooks. The Fed does not appear worried about inflation currently, although the market appears to be seeing increasing worries over the potential for a rapid rise in prices and may feel the Fed is already behind the curve.
Nothing further will be known about the Fed and its plans until the end of the month. The central bank is unlikely to make any changes currently, however, and its language is likely to remain largely the same if not completely the same. The Fed will almost certainly hold its current line of keeping rates at or near zero while also pumping the economy with capital through current QE operations. At some point, the Fed may fuel a rise in inflation but that rise appears to be down the road and not of current concern.
In the meantime, gold investors will continue to monitor the economic recovery as well as the ongoing vaccination campaign. Any trouble in the vaccination campaign could set the stage for a major risk-off period that could see stocks tumble rapidly while perceived safe haven assets such as gold draw buyers. If, on the other hand, the campaign runs smoothly, hopes for an end to the pandemic could keep risk appetite elevated and stocks running higher.