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Gold Price Remains Constrained, Risk-On Rally Stalls Upside Progress

Gold Price Remains Constrained, Risk-On Rally Stalls Upside Progress

Nick Cawley, Strategist

Gold Price (XAU/USD) Analysis, Price and Chart

  • COVID-19 lockdown measures continue to be unwound as data improves.
  • US-China tensions remain and future escalation remains likely.

Gold Held In-Check by Conflicting Risk Outlooks

Gold remains subdued in a tight short-term trading range as market sentiment continues to swing between risk-on and risk-off. Today’s price action is being held in place by a risk-on move, predicated on further testing of a COVID-19 vaccine, and the continued unwind of lockdown measures. Various vaccines have been mooted in the past and while testing continues, building hope on these drugs may be unwise. The COVID-19 data however continues to improve in nearly all countries and lockdown measures are being wound back accordingly. While this continues, risk-on sentiment will likely prevail, weighing on the price of gold.

While risk-on remains an anchor on any future upside moves for gold, the growing tensions between the US and China should act as a layer of support for the precious metal. China’s foreign minister Wang Yi said over the weekend that recent comments by the US risk pushing the two countries ‘to the brink of a new cold war’. China continues to press ahead with a new security legislation in Hong Kong, while the US administration has been scathing about the lack of clarity from China over the spread of COVID-19.

The daily gold chart shows a tightening short-term range with the 20-dma now under pressure as the price slips lower. Two recent lows at $1,716.8/oz. and $1,710.8/oz. may offer limited support before the recent uptrend comes into play just below $1,700/oz. A close and open below this trendline would leave gold searching for further support. The May 18 multi-year high at $1,765/oz. is unlikely to be troubled in the near future unless there is a major flare-up between the US and China.

Gold Daily Price Chart (December 2019 – May 26, 2020)

Gold Price Remains Constrained, Risk-On Rally Stalls Upside Progress

What is your view on Gold – are you bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.