Gold: On the Verge of an Upside Breakout

Negative U.S. interest rates come under the spotlight, while U.S.-China relations remain uncertain...

Gold 5

Gold has regained upside momentum after Donald Trump's call for negative interest rates. Even though Federal Reserve Chairman Jerome Powell said yesterday they are not considering such a move, he admitted that economic outlook is "highly uncertain" and "subject to significant downside risks".

In reality, Fed funds futures, expiring in April 2021, prices have gone past 100 since last Thursday, suggesting that traders are expecting some chances of negative interest rates next year.

Source: TradingView (for illustrative purpose)

On the other hand, the Federal Retirement Thrift Investment Board, which oversees the U.S. federal pension fund, said it is delaying a switch in the benchmark index that includes Chinese stocks. Previously, media reports suggested that the government is planning to ban its pension fund from investing in Chinese equity markets, amid heightened tensions between the U.S. and China.

With U.S. presidential election approaching later this year, Donald Trump is likely to have his own game plan. Despite not knowing how his plan will play out, the current situation seems to be benefiting gold.

From a technical point of view, spot gold keeps its bullish momentum in the short term as shown on the daily chart. It continues to trade at levels above March high and is challenging the upper boundary of a symmetrical triangle pattern, following a previous rally. The level at $1,670 may be considered as the nearest support, with prices likely to test the 1st and 2nd resistance at $1,748 and $1,790 respectively. Alternatively, a break below $1,670 might trigger a pull-back to $1,640.

Source: TradingView, Gain Capital

For intraday, spot gold also stays on the upside, as shown on the 30-minute chart, after breaking above its previous trading range and is supported by a rising trend line drawn from May 1. Bullish investors may consider $1,702 as the nearest support and the 1st and 2nd resistance are likely to be located at $1,723 and $1,736 respectively. In an alternative scenario, losing $1,702 would suggest that gold might test its next support at $1,694.

Source: TradingView, Gain Capital

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