April 23, 2018

FXTM, Market Outlook on Gold 'XAUUSD' for Q2 2018

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Gold hunts for directional catalyst.

This article is originally referred from FXTM Q2 Market Forecast.

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The unsavoury mixture of geopolitical risk, fluctuating U.S. rate hike expectations, and stock market volatility throughout the first quarter of 2018 placed Gold on a wild rollercoaster ride.

An extended period of Dollar weakness at the start of the year initially boosted appetite for the yellow metal with prices sprinting above $1365 to levels not seen since August 2016.

Renewed expectations of higher U.S. interest rates following Fed Chairman Jerome Powell’s hawkish testimony subsequently sent Gold tumbling lower in February.

When Donald Trump imposed severe tariffs on steel and aluminium in March, fears of a global trade war sparked risk aversion and consequently supported safehaven assets.

It must be kept in mind that Gold is traditionally considered a sanctuary for investors seeking protection from volatility and market uncertainty, with prices edging higher near the end of Q2 amid the ongoing trade war threats between the U.S. and China.

As we head into the second quarter of 2018, price action suggests that Gold still remains a fierce battleground for bulls and bears.

The conflicting fundamental themes are likely to keep prices trapped in a wide range until a fresh directional catalyst is bought into the picture.

While geopolitical risk and lingering trade war fears may support bulls, bears remain inspired by U.S. rate hike expectations.

It is worth noting that the Greenback’s performance will be one of the key factors that determine where Gold concludes the second quarter of this year.

The Federal Reserve’s hesitance to upgrade the ‘dot plot’ forecast from three interest rate hikes to four in 2018 could be contributing to Gold’s current upside.

However, the yellow metal could find itself exposed to downside risks if the Dollar is boosted by improving economic data, rising inflation and indications of accelerating wage growth.

Signs of global inflation building momentum could elevate Gold, which is seen as an attractive inflation hedge, but may also boost expectations of higher interest rates and ultimately expose the zero-yielding metal to downside risks.

All in all, although Gold remains driven by a selection of key market themes, a direction catalyst is still needed for the metal to break out of its $50 range.

If markets somehow stabilise and expectations increase over higher U.S. interest rates in 2018, the metal could find itself vulnerable to heavy losses.

Alternatively, market uncertainty, geopolitical risk, and escalating global trade tensions may ensure the metal maintains its safe-haven allure.

Technical Analysis on Gold

Taking a look at the technical picture, Gold remains entangled in a wide range on the monthly charts, with support found at $1300 and resistance at $1360.

Price action suggests that the metal is likely to remain range bound until a fresh directional catalyst is brought into the picture.

There is some action on the daily charts with prices currently challenging $1340.

A daily close above this level could encourage a further incline towards $1360.

Alternatively, weakness below $1340 may inspire bears to pull prices back to $1324.

The weekly chart paints a similar picture to the monthly, with prices bouncing within a four-point range.

A scenario where bulls are able to push Gold above $1360 could trigger a sharp appreciation to $1400.

Alternatively, a breakdown below the psychological $1300 support may result in an abrupt decline towards $1270.

Original Source: FXTM Q2 Market Forecast

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