Gold prices ended 3% higher on Tuesday after the Federal Reserve unexpectedly cut interest rates by 0.5%, dumping the dollar along with Wall Street stocks. The precious metal surged to the $1,650 area that continue to cap the upside potential during today’s trading.
Amid the easing trend across major central banks, longer-term outlook for gold has been improving, as the measures taken by authorities signal that the coronavirus consequences may be deeper and more serious that many thought. As such, following supportive measures from the central banks of China, Australia and the US, the ECB may follow the suit next week. On the one hand, monetary policy easing is good for risky assets, but considering the rising threat of a global recession and lack of ammunition in some central banks, the safe-haven demand for gold could pick up as economic concerns are growing.
The greenback fell across the board in a reaction to the Fed rate cut but shifted into a recovery mode on Wednesday, which serves as a local obstacle for gold bulls at this stage. But in the longer run, the coronavirus developments, weaker economic data, and the political uncertainty in the country ahead of the presidential election due later this year may hit the US currency and thus keep up demand for the precious metal.
From the technical point of view, the yellow metal needs to make a clear break above the $1,650-$1,660 intermediate resistance in order to retarget multi-year highs, registered around $1,690 at the start of last week. The longer the prices remain below the mentioned resistance, the higher the possibility of a technical bounce from the current levels with the initial target at $1,620. In the near term, the bullion needs to hold above the 200-hourly moving average around $1,635 in order not to lose the current upside bias. The neutral bias in the daily RSI suggests the prices will continue to oscillate in a limited range in the near term.