Gold prices pulled back yesterday towards $1,070 as we had expected. Now I expect gold prices to bounce towards new highs near $1,100 in the short term.
However, stochastics are oversold and with prices at the lower boundary of the wedge, there is a strong probability of a bounce rather than a resumption of the downtrend.
Gold prices moved higher on Friday rebounding from support near the 10-day moving average at 1,105. The yellow metal experienced significant volatility following the surprise announcement by the Bank of Japan that they were reducing the deposit rate on excess reserves to a negative rate. Slightly stronger than expected inflation data in the Euro zone also help lift gold prices. Resistance on gold is seen near the January highs at 1,128.
Eurozone HICP inflation accelerated to 0.4% year over year from 0.2% year over year in the previous month. The uptick was in line with expectations and still leaves the headline rate far below the ECB's definition of price stability, not just due to energy prices, which were down 5.3% year over year in January. Core inflation accelerated to 1.0% year over year from 0.9% year over year.