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Gold Outlook for Week & March

March 11, 2014 at 21:16 by Vladimir Vyun

Gold experienced a strong rally during the first two months of this year, but stalled in March. What factors can influence the metal during this week and whole March?

In fact, two important events have already occurred in the current month – one positive for gold, another negative. The former was the policy meeting of the European Central Bank, the latter was the release of US non-farm payrolls. The ECB refrained from additional stimulus, pushing the dollar down, while the payrolls reinforced the US currency. Gold is usually inversely correlated with the greenback, making favorable events for the dollar bad for the precious metal and vice versa.

Both Trading NRG and DailyFX are pessimistic about the prospects of gold this week. They suggest that US economic data will continue to point on recovery, boosting the dollar and US stocks, pulling investors away from precious metals. There will be not many reports this week, but some of them, like retails sales and consumer confidence indicators, may influence markets.

Yet for now gold is not bothered by the negative outlook. In fact, the poor reports from China, which should have been negative for the metal, bolstered gold. The precious metal may rise even higher if it retains its correlations with commodity currencies as this week’s news are expected to be supportive for the Australian and New Zealand dollars.

Over the longer term, the policy meeting of the Federal Open Market Committee should impact gold. It is expected that the FOMC will continue to reduce stimulus at the same pace as previously. If this is the case, then gold will react negatively, but the fact that such decision is expected could make its impact relatively weak and short-lived. Of course, any major surprise may change that.

Outside of the United States, the economic health of China is another important factor for gold, yet it is hard to gauge its influence on the metal. On one hand, slower economic growth means less demand for precious metals. On the other, concerns about China’s economy increase the need for safer assets, boosting the appeal of gold.

The current conflict between Russia and Ukraine can also play its role. It has already pushed precious metals up once and drove them back down after the tensions eased. Gold may yet profit from the situation as the countries come closer to an actual war, while the USA considers economic sanctions against Russia.

All in all, the outlook for gold looks moderately bullish, but downside risks are present. In the short-term, the technical analysis confirms the upward momentum of the metal. Over the longer term, gold was trading in a range somewhere between $1,325 and $1,355 and a breakout to either side of the channel should be followed by a strong move to a corresponding direction.

If you have any questions and comments on gold today, use the form below to reply.

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