Near the end of the week, XAU/USD is hovering around $1825, flat for the day and about $10 above the level it had a week ago. Still, some sharp moves seem likely considering that volatility in the forex market surged.

A decline of the US dollar triggered the rally in gold. The DXY dropped from multi-day highs above 90.70 to 90.39 in a few hours. At the same time, US yields move off highs adding support to metals. XAG/USD broke above $27.20 and reached 27.42 a two-day high.

The week is about to end on a soft tone for the US dollar ahead of a long weekend due to a holiday on Monday in the US. Also, the Spring Festival in Asia could keep volume depressed at the beginning of next week.

Gold lost some additional ground during the early North American session and dropped to the lower end of its weekly trading range, around the $1810 region.

The precious metal witnessed some heavy selling for the second consecutive session on Friday and was weighed down by a combination of factors. Despite doubts about the pace of the US economic recovery, the US dollar was back in demand and exerted some follow-through pressure on the dollar-denominated commodity.

The USD got an additional boost from a strong pickup in the US Treasury bond yields. The US bond market has been reacting strongly and pricing in the prospects for the passage of US President Joe Biden’s $1.9 trillion stimulus package. This was seen as another factor driving flows away from the non-yielding yellow metal.

That said, a softer risk tone extended some support to the safe-haven XAU/USD and helped limit any further losses, at least for the time being. The commodity has managed to recover a bit from daily lows and was last seen trading around the $1817-18 region, though the near-term bias remains tilted in favor of bearish traders.

Market participants now look forward to the US economic docket, highlighting the only release of the Michigan Consumer Sentiment Index for February. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus. Traders might further take cues from the broader market risk sentiment.

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Technical analysis

Gold prices moved higher but continue to trade in a tight range. Support is near the 10-day moving average near 1,872, with resistance seen near the December highs at 1,906. The 10-day moving average crossed above the 50-day moving average which means a medium-term uptrend is now in place.  Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Medium-term momentum is positive to neutral as the MACD (moving average convergence divergence) histogram prints in the black with a flattening trajectory, which points to consolidation.

The House Votes to Increase Federal Payments

The House voted to increase the second round of federal direct payments to $2,000 as Democrats embrace President Donald Trump’s calls to put more money in Americans’ pockets. The measure would boost the stimulus checks in the year-end coronavirus relief and government funding package to $2,000 from $600.

“Gold Price Prediction – Prices Rise on Moving Average Crossover”

Gold price 2021 outlook

Despite the liquidity flooding the financial markets, the inflation outlook in major economies remains subdued and major central banks voiced their commitment to keeping their policies extremely loose until they see a convincing increase in price pressures. This suggests that investors will not give up on gold in the near future.

On the other hand, a return to normality with mass COVID-19 vaccinations could make risk-sensitive assets more attractive, especially in the second half of 2021, and dampen the demand for the yellow metal.

Overall, the gold price outlook remains bullish with the rate of increase in prices softening when compared to 2020.

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Although global vaccine producers are on their way to get regulatory approvals from the US and the UK, the surge in the covid numbers hasn’t faded yet, which in turn keeps the market players worries unless the cure to the pandemic rolls out. Also portraying the virus pessimism is the record high hospitalization rate in the US as well as the latest resurgence in Asian countries like Japan and India.

“Gold is consolidating Friday’s bounce from the long-held support at $1850, buoyed by a broadly weaker US dollar, courtesy of the covid vaccines-led optimism.”

Additionally, challenges to the soft Brexit, due to the disagreement over the key issues including fisheries, governance and competition rules, joins the doubt over the future of the Federal Reserve’s emergency lending program to weigh on risks. Furthermore, US President Donald Trump’s tiring efforts to stop the President-elect Joe Biden from reaching the White House also add to the market’s lack of clarity and sour the trading sentiment.  “Covid data, uncertainty over Fed’s emergency program battle optimism concerning virus treatments, Brexit. Gold bounces off intraday low of $1,868.90, keeps pullback from the previous day’s top surrounding $1,880.”

Amid these catalysts, S&P 500 Futures wobble around the mid-3,500s with no clear direction. It should also be noted that markets in Japan are closed for the day and hence fewer moves are expected unless any surprises erupt from the risk front.

“Gold Price Analysis: XAU/USD holding onto critical $1871 level amid vaccine progress – Confluence Detector”

Though, the preliminary readings of November month’s activity numbers for the leading economies, like the US and the UK, will be important to watch for the day.

Considering the bullish MACD signals, gold buyers are likely aiming at the one-week-old falling trend line and 10-day EMA joint, around $1,879-80, during the further recovery moves. However, the $1,900 round-figure can restrict the metal’s short-term upside. On the contrary, the $1852/48 support area, comprising the recent lows and May’s bottom, becomes the key support to watch if the bullion turns to the south.

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The pandemic of 2020 would soon show itself to be the driving force behind one of the most ferocious rallies the gold market has ever seen. At the close of trading in New York on Friday, bullion had spiraled to $1,902.02 an ounce, some 30 percent higher than the low it hit in March and just one percent off a record high set back in 2011, Bloomberg reported.

The virus has unleashed a torrent of forces that are conspiring to fuel relentless demand for the perceived safety from turmoil that gold provides. There’s the fear of further government-ordered lockdowns; and politicians’ decision to push through unprecedented stimulus packages; and central bankers’ decision to print money faster than they ever have before to finance that spending; and the plunge in inflation-adjusted bond yields into negative territory in the US; and the dollar’s sudden decline against the euro and yen; and rising US-China tensions.

All these things, when taken together, have even triggered concern in some financial circles that stagflation — a rare combination of sluggish growth and rising inflation that erodes the value of fixed-income investments — could take hold across parts of the developed world.

In the US, where the virus is still raging and the economic recovery is stalling, this debate is growing louder. Investor expectations for annual inflation over the next decade, as measured by a bond-market metric known as breakevens, have moved higher the past four months after plunging in March. On Friday, they hit 1.5 percent. And while that remains below pre-pandemic levels and below the Federal Reserve’s own two percent target, it is almost a full percentage point higher than the 0.59 percent yield that benchmark 10-year Treasury bonds pay.

The main driver behind gold’s latest rally “has been real rates that continue to plummet and don’t show signs of easing anytime soon,” Edward Moya, a senior market analyst at Oanda Corp., said by phone. Gold is also drawing investors “concerned that stagflation will win out and will likely warrant even further accommodation from the Fed.”

US bond markets have been a driving force behind the rush to gold, which is serving as an attractive hedge as yields on Treasuries that strip out the effects of inflation fall below zero. Investors are looking for safe havens that won’t lose value.

The mania for gold right now has trickled down to Main Street. Retail investors have helped put ETF holdings backed by gold on track for an 18th straight weekly gain, the longest streak since 2006. Meanwhile, gold posted its seventh weekly gain on Friday, and analysts don’t expect the increases to end anytime soon.

“When interest rates are zero or near zero, then gold is an attractive medium to have because you don’t have to worry about not getting interest on your gold,” Mark Mobius, co-founder at Mobius Capital Partners, said. “I would be buying now and continue to buy.”

Analysts have been predicting huge upside for gold for several months. In April, Bank of America Corp. raised its 18-month gold-price target to $3,000 an ounce.

“The global pandemic is providing a sustained boost to gold,” Francisco Blanch, BofA’s head of commodities and derivatives research, said, citing impacts including falling real rates, growing inequality and declining productivity. “Moreover, as China’s GDP quickly converges to US levels helped by the widening gap in COVID-19 cases, a tectonic geopolitical shift could unfold, further supporting the case for our $3,000 target over the next 18 months.”

Bank of America’s bold prediction was made after gold prices initially dropped in March as investors sought cash to cover losses on riskier assets. Prices quickly recovered after a surprise cut to the Fed’s benchmark rate and signs that the economic toll of the coronavirus would lead to massive stimulus efforts from global governments and central banks.

This isn’t the first time gold has gotten help from central bank stimulus programs. From December 2008 to June 2011, the Fed bought $2.3 trillion of debt and held borrowing costs near zero percent in a bid to shore up growth, helping send bullion to a record $1,921.17 in September 2011.

The crisis a decade ago was all about banks, said Afshin Nabavi, head of trading at Swiss refiner and dealer MKS PAMP Group, who now sees gold “pointing towards $2,000.”

“This time, to be honest, I do not see the end of the tunnel,” he said, at least until US elections in November.

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Spot gold was up 0.2 percent at $1,769.76 per ounce as of 0234 GMT after touching $1,773, its highest level since October 2012 in early Asian trade, Reuters reported.

US gold futures rose 0.2 percent to $1,785.80.

“The fears of second wave coronavirus cases particularly in the US, and also in Latin America is driving concerns about sustained weakness in the economic recovery and that’s certainly supporting safe-haven assets like gold,” said ANZ analyst Daniel Hynes.

“Continued support that central banks are likely to provide to the market with bond purchasing programs and monetary easing will clearly keep the rates low for the foreseeable future.”

Central banks across the globe have taken aggressive stimulus measures and kept interest rates low helping gold prices surge more than 16 percent this year, as the precious metal is widely viewed as a hedge against inflation and currency debasement.

US Treasury Secretary Steven Mnuchin said the next stimulus bill will focus on getting people back to work quickly and that he would consider a further delay of the tax filing deadline.

Several US states reported record infections and the death toll in Latin America passed 100,000 on Tuesday, according to a Reuters tally.

The New York Times reported the European Union is prepared to bar US travelers because of the surge of cases in the country, putting it in the same category as Brazil and Russia.

Also helping gold’s appeal, the dollar index hovered near a more than one-week low.

Elsewhere, palladium edged up 0.1 percent to $1,926.06 per ounce, platinum dropped 0.4 percent to $825.59 and silver fell 0.4 percent to $17.89.

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This has been stipulated in the country’s Sixth Five-Year Economic Development Plan (2016-2021), IRNA reported.

According to figures by the Iranian Mines & Mining Industries Development & Renovation Organization (IMIDRO), the country achieved 80 percent of the target by March 2019.

IMIDRO statistics show that 670,592 tons of gold ore was extracted from Iranian mines in the year to March 2007, from which 1,432 kilograms of gold were produced.

As of that year, the country’s gold production started a growing trend, having been, however, subject to periodic fluctuations due to problems stemming from, among other things, the closure of processing factories.

In the year to March 2014, Iran mined 1.66 million tons of gold ore, from which 4,196 kilograms of gold were produced.

IMIDRO puts Iran’s total gold reserves at 300 tons.

Earlier, the head of Iran’s Mine House, Mohammadreza Bahraman, said close to 8.5 tons of gold were extracted from Iranian mines during the previous Iranian calendar year, which ended on March 19, 2020, according to yjc.ir.

He added that most of Iran’s gold reserves are located in small mines.

“Each mine creates at least 350 jobs,” Bahraman noted.

Zarshouran Gold Mine, located 35 kilometers from Takab, in the northwestern province of West Azarbaijan, is the biggest gold mine in the Middle East, containing 30 percent of Iran’s gold reserves. Initial estimates have put recoverable gold deposits in Zarshuran at 55 tons, which could rise to 110 tons by further drilling.

Currently, some 700 people are working in the mine.

Sari Gunay, another gold mine in the western city of Qorveh, is being tapped by a Kazakh miner under a seven-year contract. Sari Gunay, which means yellow sun in Turkish, is estimated to hold 18 tons of reserves.

In 2006, Anglo-Australian miner Rio Tinto pulled out of the Sari Gunay project in Iran’s Kurdestan after deciding it was not commercially viable.

Iran has identified as many as 15 mines so far, capable of yielding 320 tons of processed gold. The country’s gold mines are mostly concentrated in the northwestern provinces of West Azarbaijan and East Azarbaijan, with the former containing about 0.5 percent of the world’s minable gold reserves.

Iran is ranked as the world’s 54th gold producer; and investment in the country’s gold mines has been reflecting a growing trend during the past few years as global gold prices keep rising.

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