XAU/USD: Inflation Expectations Hint at Gold as Best Store of Value
Key Talking Points:
- Further stimulus and rising inflation expectations pave the way for a bullish run in Gold
- Elon Musk suggests moving away from US Dollar as a store of value
The price of gold has been shining in the last few sessions as the precious metal picks up bullish momentum and rises 3.5% since its lowest level seen last Thursday. US Dollar weakness is a key factor behind the recent strength in dollar-denominated assets, but gold may also be benefiting from a fall in economic expectations after weaker than expected NFP figures last Friday.
The technical picture seems to be painting a significant push higher in the short-term, as suggested by a bullish cross of the MACD lines on the daily chart and strong support from moving averages on the 4-hour chart. Fundamentally, weaker expectations for US data could pressure bond yields to the downside whilst expectations for the $1.9 trillion stimulus package to be approved will keep inflation expectations rising, supporting gold in the short-term.
There is also a hint at future expectations in Tesla’s 2021 10k filing with the SEC, whereby the company expressed that they were diversifying out of traditional assets and into alternative reserve assets to maintain adequate operating liquidity, such as digital assets, and gold. Whilst Bitcoin shot up significantly after this was published, it would do given how volatile the cryptocurrency market is, gold is unlikely to see a direct effect from this, but the message they are giving may be supportive for gold in the medium turn. They are essentially suggesting that they do not want their treasury to be held in US Dollars because they expect inflation to be high, meaning that gold is the next-best asset as a store of value.
Short-term hurdle around 1,845-46 looks likely to be broken during today’s session with short-term expectations of a break above 1,850 looking more likely. Further upside will likely face increased bearish pressure around 1,860-66 where the 50-day and 100-day simple moving averages can be found. For now, XAU/USD looks set to push higher as long as it remains above 1,835. Alternatively, a drop below this level could see the price of gold retrace further towards the 1,800 line, although short-term range seems to suggest increased support around the 1,810 area.
XAU/USD Daily chart
--- Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.