Declines in the US dollar boost gold

By Admiral Markets 

– In March we noted that the strength of the US dollar and US bond yields were negatively affecting the price of gold. However, during the last few sessions we have seen that this pressure is now easing. Bond yields are falling and, after several weeks of rises in the dollar index, it is now experiencing a pullback that has taken it back to the lower band of its channel after facing its 200 session average which acts as the main resistance level and briefly surpassing the upper band of the bullish channel.

Source: Admirals (formerly Admiral Markets) MetaTrader 5 – US Dollar Index Daily Chart. Date Range: 17 December 2019 – 19 April 2021. Date Captured: 19 April 2021. Past performance is not necessarily an indication of future performance.

Price evolution of the last five years:

• 2020: -6.42%
• 2019: 0.34%
• 2018: 4.26%
• 2017: -10.22%
• 2016: 3.59%

As we can see below, the correlation between the dollar index and gold is negative. This implies that declines in the US dollar benefit the price of gold as investors stop seeking refuge in the US currency and turn their attention towards gold.

Source: Admirals MetaTrader Supreme Edition Add-on – Correlation Matrix

Gold Analysis

As we have mentioned in previous analyses, during the first part of 2020 gold was one of the best performing assets in the market, experiencing a rise of more than 25% that took it to 2,089 dollars per ounce. But after reaching this high at the beginning of August, the price began falling within the bearish channel until it reached the key support in the area coinciding with the lower red band around 1,675 dollars and the 61.8% fibonacci retracement level of the previous uptrend.

At this last support level, gold has recovered after making a double bottom formation that has led it, not only to break above its 18-session and 40-session moving average, but also to overcome both its previous support level in red and its important resistance represented by the trend line or upper band of the bearish channel, leading the price to confront its 200-session average.

The break of this level could trigger a strong bullish momentum that would lead the price to break above its next resistance level. This would open the door for the precious metal to seek levels not seen since the beginning of the year. Therefore, it is very important that we keep an eye on the price’s behaviour in the coming sessions – as a failure in this attempt could cause gold to re-enter its bearish channel.

Source: Admirals MetaTrader 5 – Gold Daily Chart. Date Range: 17 December 2019 – 19 April 2021. Date Captured: 19 April 2021. Past performance is not necessarily an indication of future performance.

Price evolution of the last five years:

• 2020: 21.86%
• 2019: 15.45%
• 2018: -3.22%
• 2017: 12.75%
• 2016: 10.12%

Brent Analysis

As we can see in the weekly chart, after reaching a low of 15.32 dollars per barrel in March 2020, Brent has experienced a strong recovery following a bullish channel that has led it to reach a high of 72.03 dollars per barrel in just one year in the area close to the blue band.

After this high, the price started a pullback that led it to lose 10 dollars per barrel and, after several hesitant weeks characterised by a rather sideways price movement, last week the price ended at 66.75 dollars after rising by 5.82% per week. This initial rise was driven mainly by optimism related to the economic recovery in the United States and after good GDP data was published in China. As always, we will have to keep an eye on the evolution of the pandemic in Europe and the vaccination process, as perceived problems persist with the AstraZeneca and Janssen vaccines.

Technically speaking, the price is continuing in a very similar situation to that of the last few weeks, confirming the sideways consolidation movement of the price in the middle zone of its channel. As long as it maintains its main support levels at its 18 session average and the 60 dollar level, sentiment will remain positive as we are gradually coming out of the accumulated overbought levels. The loss of support would open the door to look for the lower band of the bullish channel.

Source: Admirals MetaTrader 5 – Brent Weekly Chart. Date Range: 3 August 2014 – 19 April 2021. Date Captured: 19 April 2021. Past performance is not necessarily an indication of future performance.

Price evolution of the last five years:

• 2020: -21.52%
• 2019: 22.68%
• 2018: -19.55%
• 2017: 17.69%
• 2016: 52.41%

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By Admiral Markets