Gold price support rebound! Upbeat US FOMC assessment put pressure on new retail sales data to dampen gains
2021-02-18


FX168 Financial News (Hong Kong) - Gold prices continue to deteriorate as the dollar strengthens and US Treasury yields rise. Gold prices have struggled to support the rally, but an upbeat assessment of 2021 from the Federal Open Market Committee, stronger than expected U.S. retail sales and stronger data have boosted risk taking in the market, with investors turning away from the precious metal's safe-haven asset to equities and the dollar.
 
Gold was up 0.18 percent at $1,780.10 as of 8:24 a.m. in Hong Kong.
 
Fundamental Analysis: The FOMC's optimistic outlook masks the ongoing slow economic recovery
 
The minutes of the US FOMC meeting reflected a significantly more optimistic outlook for 2021 than forecast in December. Minutes from the January 26th BBB meeting showed that policymakers believed the pace of recovery in economic activity and employment had slowed in recent months. Reuters summed up the key points: "Policymakers said the economy was far from achieving its long-term goals and needed to remain resilient until it did. All participants supported the January policy decision, and participants felt that it would likely take some time to achieve substantial further progress in quantitative easing."
 
Participants judged that the overall financial position of the United States remained accommodative and that inflation was widely expected to increase over time. Credit conditions for some borrowers were relatively tight, and participants continued to focus on uncertainty about the outlook. Notably, however, participants emphasized that continued assistance from U.S. fiscal policy would help address the plight of those most affected by the recession, particularly low-income families, blacks and Hispanics. After the release of the FOMC minutes, there did not appear to be a significant impact on the dollar's rise. The minutes reflected pessimism about the economic performance ahead of the meeting and their significantly more optimistic outlook for 2021, which prevented gold from continuing its rally.
 
Fundamental Analysis: New U.S. retail data blow
 
Gold prices took a fresh hit from US retail sales, where spending rose 5.3% in January, a figure that was significantly higher than expected. The strong update triggered a renewed sell-off in bonds, pushing yields above 1.3 per cent. In contrast to US bonds, precious metals offer no return, making them even less attractive to the market. At the same time, U.S. President Joe Biden continues to push for a new $1.9 trillion economic stimulus package, which will provide more guidance on the future direction of gold.
 
Technical analysis:
 
Technical convergence indicators for gold suggest resistance is now waiting at the January low of $1,803. If the rally holds, the upside target is $1,825.