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Gold Price Analysis: XAU/USD bulls likely to face an uphill task towards $1875 – Confluence Detector

· Gold (XAU/USD) continues its advance and sits at weekly tops near $1870, cheering the progress on a $900 billion covid relief aid package. Congressional negotiators are “closing in on” the stimulus package, having discussed the contents of the package while setting aside the key issues of contention.

· Further, the upbeat market mood amid hopes for a Brexit deal and dovish Fed weighs on the safe-haven US dollar, underpinning the sentiment around gold ahead of the key US employment data.

· How is gold positioned on the charts?

The Technical Confluences Indicator shows that the XAU/USD pair needs to scale above the critical resistance at $1867.62 for the additional upside. That level is the one-week high reached earlier in the session.

· The next significant resistance awaits at $1870, the intersection of the Pivot Point one-week R1 and Bollinger Band one-week Upper.

· The buyers will then challenge the $1873 barrier, which is the SMA50 one-day, on its way to the previous week high of $1875.

· A sharp rally towards the Fibonacci 38.2% one-month at $1889 cannot be ruled if the bulls find acceptance above the previous week highs.

· Alternatively, the bull will continue to find strong support at $1856, the convergence of the Fibonacci 38.2% one-week and SMA10 four-hour.

· A minor cushion at $1853 could slow down the declines. That level is the meeting point of the SMA50 one-hour and Fibonacci 61.8% one-day.

· Meanwhile, the level to beat for the XAU bears is the confluence of the SMA5 one-day and the previous day low at $1845.

· FXEmprie | Gold Daily Forecast

With the Fed’s dovish announcements, the gold market remained securely anchored by monetary policy.

The strong hope for a new fiscal stimulus package from Congress is driving the market higher. The trend will change to up on a trade through $1879.80, but buyers will have to overtake $1894.60 in order to generate the momentum needed to fuel an acceleration to the upside.

Unfortunately, I think gains will be limited because of the size of the proposed stimulus package. It’s big enough to produce a rally, but I don’t think it’s enough to recover all of the loss from the November high at $1973.30.

However, we could see an even bigger stimulus move once President-elect Joe Biden takes office on January 20.

· JPMorgan closes bullish call on base metals as Chinese credit cycle slows

JPMorgan has turned “neutral” on base metals, which include copper, aluminum, nickel and zinc, and now forecasts that copper will deteriorate from an average of $7,700 per ton in the first quarter of 2021 down to around a $6,500 per ton average in the fourth quarter.

“Our analysis shows that a slowing in Chinese credit over the course of 2021 will turn into a drag on base metals prices that will likely outweigh continued recovery in the rest of the world,” JPMorgan commodities analysts said in a quarterly outlook report.

U.S. congressional negotiators haggled on Wednesday over details of a $900 billion Covid-19 aid bill that is expected to include $600-$700 stimulus checks and extended unemployment benefits, causing the dollar to languish near a more than two-year trough.

“The market likely read into what the Fed was saying as a pre-commitment to continue quantitative easing and took support from that,” said Spivak, adding that the metal remained sensitive to the Fed’s less dovish stance on bond purchases.

With interest rates likely to stay near zero for years to come, the Fed on Wednesday more explicitly promised to continue its bond-buying program until there is “substantial further progress” in restoring full employment and hitting its 2% inflation target.

Investors now await the Bank of England’s policy decision, due at 1200 GMT, where it is expected to refrain from further stimulus ahead of a possible no-deal Brexit.

“Brexit will sketch the course for gold in the coming days and once that happens we will see funds flowing back to (gold) exchange traded funds again,” said Brian Lan, managing director at GoldSilver Central.

· In rare move, Japan sells gold to fill budget hole

Japan has sold 80 tons of gold used for minting coins to another arm of the government to fund part of its huge stimulus package to combat the coronavirus crisis, government officials told Reuters.

Saddled with public debt twice the size of its economy and tax revenues hit by the pandemic-induced recession, the finance ministry is under pressure to find non-tax revenues to cover the rising cost of spending to deal with the health crisis.

The ministry usually taps reserves set aside as special accounts, and profits the Bank of Japan and other agencies return to state coffers after they close their annual books.

This time, the ministry resorted to a rare arrangement involving the central bank.

Under the move, the ministry’s division in charge of international affairs sold a portion of dollar reserves to the BOJ. With the yen it received, the division bought gold from another division of the ministry in charge of debt management.

From the gold sale, the division in charge of debt management gained proceeds worth 500 billion yen ($4.84 billion) that would be used to finance a new fund aimed at boosting research and development at universities, two officials told Reuters on condition of anonymity as they were not authorised to speak publicly.

The BOJ announced on Wednesday it would buy dollars from the ministry as a precaution against any market disruptions caused by the pandemic.

But some analysts say the arrangement may have been initiated by the finance ministry, which wanted to avoid issuing too much debt or using taxpayers’ money for the fund.

Reference: CNBC, FXEmpire, FXStreet