Gold registered its largest daily gain in the past two weeks on Friday as the US dollar halted its strong run of form. The USD denominated gold tends to trade in the opposite direction to the greenback, which surged to record highs this week.

The US dollar index (DXY) tested the major resistance of 103, which marked the notable reversal in 2016, before retreating lower to 101.95. Increased volatility in the markets and corresponding liquidity concerns helped to push the US dollar higher throughout the week.

With the combined effect of margin calls being triggered in equity markets and an overall indecision on which financial products to invest in, traders were left guessing and, as a result, many pulled out of their gold positions in favour of T-bills and general cash hoarding.

Many analysts are now recommending buying into any dip in gold prices and holding for the foreseeable future. Given record low interest rates, which translate into negative real rates when factoring in inflation, and central banks printing out more and more money to combat the coronavirus, we could expect a weaker US dollar over the next 12 months. Under such circumstances, gold is likely to remain strongly supported and could push significantly higher.

From a technical perspective, the levels to watch out for in the short term will be the 1,500 psychological pivot point as well as the weekly low of 1,450. Should the precious metal manage to clear above the 1,500 mark and set higher high than the previous session, we could be looking at a strong surge in gold prices to test the mid 1,500 range. The RSI is out of the oversold territory on an upward trajectory, with momentum slowly returning in favour of the bulls.

Traders may be looking towards waiting for market open to trade any dips in gold prices. The overall recommendation here remains to go long, as we expect markets to remain volatile amid quantitative easing efforts by global central banks. The strategy here would be to hold gold for the medium to long term horizon.

Support & Resistance Levels:
S3 1,400
S2 1,450
S3 1,475
P – 1,500
R1 1,525
R2 1,548
R3 1,580

Analyzed by: Mr. Thibault Moirez, Independent Analyst