Overnight Headlines

*USD slips to one-week low

*US equities closed modestly lower, futures modestly higher

*Gold hits highest level in over three-and-a-half months, oil nears $70

US equities began the week in subdued fashion, not surprising after last week’s volatility as the joust between inflation jitters and the reopening of economies plays out. Energy was again a leader as Brent pushes towards $70 while growth and tech were a drag. Asian markets are generally higher with European bourses set to open in the green.

USD continued moving lower for a second straight day, albeit in a narrow range as the DXY approaches the May lows at 89.98 ahead of the February low at 89.68. GBP has made new month-to-date highs this morning and looks to be heading to the February highs above 1.42 while US bond yields trade mostly flat.

Market Thoughts – Perfect cocktail for gold breakout…

We wrote last week about the potential for gold to move higher if it could get past a some resistance and after several attempts, the precious metal surged north yesterday. As we said, the current environment of falling real yields and rising inflation expectations is ideal for gold, though there have been other reasons thrown around for this week’s jump higher.

Gold ETFs have started to pick up again this month which is positive as the market is reading higher inflation, while the softening dollar helps with short positioning continuing to build. The selloff in bitcoin yesterday is also being discussed as a potential reason for gold’s move up with the BTC/Gold flip being traded heavily in the US in recent weeks. Silver and other metals are following gold’s lead too.

Chart of the Day – …sees Gold surge past 200-day SMA

The break higher in the precious metal means the 200-day SMA and the 61.8% Fib level from this year’s high to low now act as support around $1848/51. Interestingly, this bullish move has also seen prices break through a major resistance trendline down from the $2000 highs so could add further support if the break holds. The next retracement level above and target for gold bugs lies just below the psychological $1900 mark at $1898 but may be tough to crack as conditions become increasingly overbought in the near-term. Consolidation before bullish momentum resumes could be in order with the upper Keltner touched, though the MACD is positive.