Gold Prices Hold Support, Weaker Equities Underpin Investor Demand

Although the dollar has maintained affirm tone, USD/JPY has continued to hit resistance above the 115.00 level with a weaker tone in equity markets also curbing potential selling pressure on gold prices.

Narrow ranges prevailed later in the US session on Monday with no significant new market-moving events. The dollar maintained a firm tone, but again hit selling interest near 115.00 which curbed selling pressure on gold. Overall, prices continued to drift lower towards the $1,202 level, but with no heavy selling pressure.

Source reports suggested that US Treasury Secretary Mnuchin would strongly defend US interests at the upcoming G20 meetings which maintained expectations of a tough stance on trade. As a result, there was a reluctance to push the dollar higher despite favourable yield trends.

The dollar made a fresh advance in early Europe on Tuesday with USD/JPY again looking to break above the 115.00 level and moved to test $1,200 support, although ranges were again relatively narrow.

The US producer prices reading was slightly stronger than expected with a monthly increase of 0.3% for February following a 0.6% previously with the annual increase rising to 2.2%, the strongest rate of increase since March 2012.

Core prices rose 0.3% on the month to give a 1.5% annual gain.

US Treasury prices rallied slightly after the data with a further sharp decline in oil prices adding to support for the US fixed-income market as 10-year yields declined slightly to below 2.61%.

USD/JPY also edged lower after again being rejected above the 115.00 level as energy prices remained under pressure.

A slightly weaker dollar and lower bond yields helped underpin precious metals, especially as downward pressure on energy prices also contributed to selling pressure on Wall Street. Overall, gold prices strengthened to the $1,206 area, although selling pressure quickly emerged.

There was some sign of renewed investor support as holdings in the SPDR Gold Trust rose 0.83% on Monday.

Caution will continue to be an important short-term factor ahead of Wednesday’s Federal Reserve policy statement. There is likely to be some speculation that the recent decline in oil prices and on-going US dollar strength will lead to a slightly more dovish policy statement.

Developments surrounding the general election in the Netherlands on Wednesday will also be monitored closely given potential wider ramifications for the Euro-zone political outlook.

Gold Prices 4-Hour Chart

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Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.