Gold Rallies Despite The ECB & The Fed

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Gold and Silver kicked off the year with strong gains, some would say its due to the fears of the major change in the US, especially after the elections. However, it’s not only about the US; there are many factors involved. In today’s article, we will explain the reasons behind safe haven assets rally, what’s the future outlook, will it last and what are the levels to watch ahead.

The US Policy

Safe haven assets rally might be influenced by the latest change in the US, the new president Donald Trump and his strong views and messages are increasing the fears regarding the future relationship with the whole world. Building the wall with Mexico, withdrawing from the TPPT, threatening China and the US companies, all these factors might have an impact on Gold.

Major Factor

One of the major factors of Gold & Silver rally comes from inflation. For the past few weeks, a lot of inflation data suggested that there is a possible inflation pressure ahead, whether in Asia, Europe, and even the US.

The table below shows the latest change in inflation

Country

Inflation Rate

Note

China

2.02%

Highest since October 2011

Japan

0.50%

Highest since May 2015

Euro Zone

1.10%

Highest since August 2013

Germany

1.50%

Highest since April 2014

US

2.21%

Near the highest since 2011

Gold Rallies Despite The ECB & The Fed

Gold continued to rally in the past few weeks, despite the fact that the US Dollar Index continued to rally all the way above 103 back in 2015 when the US Dollar Index topped around 100 barrier, Gold took a nose dive all the way back to $1040’s areas. However, when the US Dollar Index rallied above 100 barrier, Gold managed to stabilize above $1150.

As for the ECB, Mario Draghi announced a plan to start tapering the current QE by April of this year, which means the end of the cheap money era. Such action by the ECB should not be positive for Gold. Yet, it managed to stabilize above 1200 again.

Will This Rally Last?

To determine that, let’s look a little bit at the history. The yearly chart of gold showed a slight positive signal, as gold closed higher for the first time after three years of consecutive declines. Yet, the yearly close is not that positive, but it might be the beginning of a new bottom. With last year’s close, I would say that a bullish outlook is developing as long as Gold stays above $1100 this year.

What To Watch Next

In the next few weeks and months, traders should concentrate on two things, inflation and the implementation of the new administration in the US (Fiscal Stimulus). Higher inflation would keep the possibility for another tick higher over the coming months, and likely to keep Gold above its yearly low.

As for the technical outlook, Gold crossed above its 50 DAY MA a few weeks ago with a clear weekly close above that MA which stands at $1174 today. However, Gold failed to break above $1215 forming a potential double top on the daily chart, which increases the possibility for a short-term retracement in the coming days. Yet, this might be only a short-term retracement to retest the Moving Average. Therefore, traders need to keep an eye on the level very carefully where buyers are likely to appear.

Levels To Watch

Symbol

S3 S2 S1 Pivot R1 R2 R3
XAUUSD 1194.36 1201.03 1205.66 1212.33 1216.96 1223.63 1228.26
XAGUSD 16.751 16.888 17.036 17.173 17.321 17.458

17.606

 

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