Gold consolidation bullish! U.S. Federal Reserve looks ahead to recovery in second half of the year
2021-02-23


FX168 Financial News (Hong Kong) - Gold prices are consolidating their recent bullish trend to fluctuate around $1,814, benefiting from a weaker US dollar. The latest speech from the Federal Reserve and the lifting of the British embargo continued to drive the market toward optimism, as the economy was expected to recover in the second half of this year. Gold's rally is expected to continue to gain support as the dollar and Treasury yields struggle to recover.
 
Gold was down 0.01 percent at $1, 810.40 as of 8:10 a.m. in Hong Kong.
 
Fundamentals: Fed releases optimism that recovery is near
 
In his latest speech, Dallas Fed President Robert Kaplan said he expects the U.S. unemployment rate to return to pre-Novel Coronavirus levels of below 4% in 2022. Other key statements added: "Social mobility will improve slowly up to June and it is uncertain whether travel restrictions will be lifted, but economic recovery is expected in the second half of the year."
 
He continued: "After the Novel Coronavirus pandemic was contained, the Fed needed to exit the extraordinary measures. As long as the dollar is the world's reserve currency, the US can finance its debt. It wouldn't be surprising if yields were rising because the outlook for economic growth was improving. "Short-term inflationary pressures are not surprising and will keep an eye on the underlying trend of inflation." It's worth noting that the dollar index hasn't moved too much since Kaplan finished his speech.
 
As for guidance on key financial data, both the US manufacturing and services PMI versions were better than expected. After a day without a major calendar, gold investors should now focus on fresh testimony from Federal Reserve Chairman Colin Powell this week, which will provide more risk catalysts.
 
Fundamental analysis: light light on new pandemic mitigation vaccine and blockade limits
 
British Prime Minister Boris Johnson announced the lifting of the blockade and the pound got a boost shortly after the new plan was announced. The lifting of the restrictions will be relaxed in four steps, spaced at least five weeks apart, Johnson explained. The final phase, which will lift all social restrictions and allow all economy-related sectors to reopen, will take place no earlier than June 21.
 
Australia, New Zealand and Israel also announced an easing of activity restrictions aimed at containing the disease, continuing to fuel optimism. The government's aggressive vaccination campaign and the latest figures suggest the epidemic is slowing down, meaning schools will reopen and business guidelines will be relaxed.
 
The dollar fell against all its major rivals as optimism returned to markets. The dollar oscillated between gains and losses and Treasury yields hit new year-to-date highs.
 
Fundamentals Analysis: The U.S. -China Trade War Is Grim Biden's New Administration Is Tough to Fight Back
 
China has urged US President Joe Biden to abolish tariffs and sanctions against China, Chinese Foreign Minister Wang Yi said at the Beijing Forum, stressing that Beijing will continue to adopt a responsible attitude towards Washington aimed at mending broken bilateral ties. He also suggested that the new US administration should abandon the initiatives of former President Trump and reopen the dialogue mechanism between the two countries.
 
Trade relations between China and the US have been deadlocked under the Trump administration, which has imposed sanctions on technology companies such as Huawei and Tik Tok and blacklisted SMIC, banning US companies from having any investment with it. In response, Wang said the two sides should re-open the dialogue platform established before Trump and roll back some of the previous administration's China policy. He reiterated the need for the United States to remove "unreasonable tariffs" and cited restrictions on Chinese media and students as another subject of concern for the Chinese government.
 
Technical analysis:
 
A trade above $1,856.60 would change the main trend, and a break above $1,759 would mark a resumption of the downtrend, according to gold's daily volatility chart. The main support is now in the long-term retracement zone at $1787.30 - $1711.70. The short term price range is $1,878.90 to $1,759.00, with the next upside target between $1,819.00 to $1,833.10.
 
A sustained break above 1807.80 would indicate the presence of buyers, which could trigger a rally to the $1,819 - $1,833.10 area. A break above $1833.10 could trigger a rally to the $1856.60 - $1862.90 area.
 
A sustained drop below $1807.80 would indicate a seller, which could trigger a sharp drop to $1787.30. If that fails, look for a possible retest of the main bottom at $1759.00.