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Gold Forecast for Week of April 8-12

April 8, 2019 at 14:07 by Vladimir Vyun

Gold dipped during the past trading week but managed to recover by the weekend. Furthermore, the metal started this week’s trading with significant gains. Does that mean that traders should be bullish on gold? Not necessarily.

The biggest potential problem for bullion is the relatively positive outlook for the US dollar. Traditionally, gold trades inversely to the US currency, and if the greenback indeed rises then the yellow metal will be in trouble.

Indeed, DailyFX made a bearish forecast, pointing at central banks as probably the major drivers for the commodity this week. The European Central Bank will conduct its monetary policy meeting on Wednesday, while on the same day the Federal Reserve will release minutes of its latest meeting. Both central banks were dovish lately, and any more dovish signs from them will likely result in risk-off trades. That would benefit the dollar and hurt gold as in recent times the greenback overtook the bullion as the investors’ safe haven asset of choice.

James Hyerczyk from FXEmpire speculated that short-covering may help gold to a some degree:

All we can say at this time is gold is not a leader, it is a follower. If Friday’s price action is any indication then we could see some light short- covering early in the week if yields decline as well as equity markets.

U.S. stocks are up about 10 sessions from their recent bottoms and investors are getting ready for earnings season so they have an excuse to book profits. This may be just enough to attract some buying.

But he also talked about a scenario when gold moves lower:

However, turning lower for the year on a move under $1294.20 and taking out last week’s low at $1284.90 with conviction could drive prices another $10 to $20 lower.

Looking at the longer-term outlook, Clif Droke published a bullish forecast on Seeking Alpha. He named five supportive factors for bullion: oil, copper, China, India, and interest rates. Investors usually are less interested in non-yielding assets in times when borrowing costs are rising. Consequently, if dovishness of basically all major central banks translates in lower interest rates that should had a positive effect on gold. He argued further that the recent strong performance of copper and crude oil bodes well for the yellow metal. In particular, the performance of copper is often tied to the economic health of China, the world’s biggest consumer of the industrial metal and also a major consumer of gold, meaning that the strength of the industrial metal signals about good health of the Chinese economy. Indeed, the latest macroeconomic data from the world’s second biggest economy was encouraging.

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