Gold prices are overdue for a rebound, and May is the month it will happen. Gold prices have been under pressure in April and the tide is about to turn for May due to the dovish Federal Reserve and lower U.S. dollar.
The dollar will come under downward pressure in the course of May because inflation is subdued and the Fed will continue to guide the market toward a patient attitude about its hiking cycle, which has been in pause since last December.
Gold traded well below its key psychological level of $1,300 for the last few weeks, but prices managed to hold on to support levels of around $1275-85.
The reason for gold’s strength in light of higher U.S. dollar and risk-on market sentiment has been central bank buying bullions.
Gold prices have remained resilient in spite of the notable wave of speculative selling since mid-February. This suggests the presence of offsetting buying pressure elsewhere from the market, especially central banks, which lifted their gold buying by 7% YoY in Q1, according to the WGC.
On Monday the turnaround in gold prices has already begun, with June Comex gold futures surging 1% to $1,302 on increased safe-haven demand amid the U.S. stock market’s worst losses of 2019.
The downward move in stocks and U.S. dollar was led by the failure of the U.S. and China to reach a trade deal late last week, resulting in new tariffs.
The US dollar will remain weak in the near term, the Fed to remain on the dovish side for longer, which should eventually exert downward pressure on the dollar. Unless inflation data surprises to the upside in the near term.
Gold broke above both 50-SMA and 100-SMA from the 20-EMA support in a day, Monday. Support now is the 100-SMA level of $1,296.06. Price to remain bulish as long as it stay above trendline support around $1,290.