Gold Market Outlook: Two Positive Factors Next Week May Help Bulls Charge Forward; Gold May Surge Over $100 to $1900

Analysts said, Gold prices attempted to break through the $1800 mark this week, a breakthrough that could help push gold prices towards $1900. USD If this level is broken, it could help push gold prices towards $1900.

Although the current gold price has not successfully broken through the $1800 mark, analysts remain optimistic about the short-term trend. This positive outlook is mainly due to two driving factors - the recent sell-off in Bitcoin and US President Biden's plan to nearly double the capital gains tax rate for the wealthy in the US.

Friday (April 23), COMEX June Gold futures closed down 0.2%, at $1777.80 per ounce, down about 0.1% for the week.

"After seeing a double bottom, we can take action on gold. Next week, precious metals may see catalysts that push them higher, due to falling Bitcoin prices and Biden's tax announcement."

Bitcoin sell-off

The popular cryptocurrency fell more than 9% on Friday, marking its worst week in nearly two months. As of this writing, Bitcoin's trading price is $50045, down 5.62% on the day.

The renewed negative volatility in Bitcoin could benefit gold, which has been at a disadvantage in the battle for popularity with Bitcoin.

"The Bitcoin chart looks a bit negative. Bitcoin has been investment one of the reasons why investors don't hold gold. Some natural buyers of gold have been buying Bitcoin. If Bitcoin continues to fall, then the next wave of gold price increases may have more momentum, and this precious metal may attract some people back from Bitcoin," said Charlie Nedoss, senior market strategist at LaSalle Futures Group.

It is important to watch Bitcoin's performance at the $48,000 level. "This is support on the chart," said Nedoss. "Bitcoin could fall to the 200-day moving average of $43,000. Since breaking above $45,000 in February, the cryptocurrency has never traded below $45,000."

Nedoss added that if $54,000 can be maintained, it would be positive for Bitcoin.

Biden proposes increased capital gains tax

Bloomberg, citing informed sources, reported that Biden's proposal means that some investors' federal tax rates could be as high as 43.4%.

"Some of the highest capital gains taxes in the world are at 30%. Most are around 20%. This exceeds that level. Coupled with Biden's infrastructure spending plan, we may see stagflation," said Pavilonis. Stagflation refers to a period of inflation combined with GDP decline.

Biden's plan is affecting stocks, cryptocurrencies, and most importantly, the dollar, which has an inverse relationship with gold.

Everett Millman, precious metals expert at Gainesville Coins, said: "The dollar doesn't seem to like a lot of the policies coming out of Washington, including the Biden administration's proposed increase in capital gains taxes. In addition, one of the next major moves is infrastructure spending. Both of these factors are putting downward pressure on the dollar, which is positive for gold."

Millman explained that if the tax structure is unfavorable to investors holding large amounts of dollar assets, they will look for other investment channels. "If capital gains taxes make the US a less attractive destination, then people's incentive to hold dollars will decrease. This will hurt the purchasing power of the dollar."

In addition, the market has not forgotten inflation, which is said to be a major driver of gold later this year. "Inflation expectations are at their highest level in years. We haven't seen a lot of measurable inflation yet, because the velocity of money is quite low. But with increased infrastructure spending, the market believes this will drive up inflation at some point," Millman added.

Gold is expected to rise sharply once it breaks through $1800

Pavilonis pointed out that once gold breaks through $1800, the rally could be even stronger due to reduced resistance.

"Gold and silver are performing very well. We are prepared for a long-term rise in gold. If it closes above $1800, we could quickly climb to $1900."

Nedoss pointed out that for gold to break through the $1800 mark, the US dollar index must fall below 90. "Gold hasn't done too badly this week. As long as it closes above $1765, it's a positive week," he said. "We need to see the dollar fall to new lows to reclaim $1800. The dollar index may need to fall below 89."

$1800 has proven to be a strong resistance level because $1806 is the 100-day moving average for gold. "It's possible to reach $1800. Given all this talk about inflation, I'm surprised gold hasn't performed better," Nedoss noted.

Millman pointed out that if it breaks through $1800, "there is considerable room for gold to rise to the high end of the $1900 range."

However, Millman warned that one thing to watch out for next week is that positive macroeconomic data could put downward pressure.

"We're seeing some nascent signs of recovery in manufacturing. A lot of short-term reactions to economic data are bad for gold and good for the overall economy. $1800 is a fairly strong resistance level, and the bulls will have to fight hard to push the price above that level."

Focus next week

There is also a series of macroeconomic data to watch next week. The most closely watched event will be the Federal Reserve monetary policy meeting, which will conclude next Wednesday, followed by a press conference by Fed Chairman Powell.

"The Fed will keep monetary policy unchanged, interest rates will remain in the 0-0.25% range, and quantitative easing will continue at a monthly asset purchase of $120 billion. Policymakers will reiterate their stance that they will not change course until there is 'substantial further progress' in the economic recovery," said James Knightley, ING's chief international economist.

In addition, Bank of Japan will announce interest rates next Tuesday.

Next Thursday will be an important day for data, with the release of the preliminary US first-quarter GDP data, initial jobless claims, and pending home sales.

“The first-quarter GDP report is likely to show another surprisingly strong growth figure, driven by stimulus-fueled consumer spending. We expect annualized growth of 7.4%,” Knightley added.

Analysts will also be watching US durable goods orders on Monday, the house price index and Chicago consumer confidence index on Tuesday, and the PCE price index on Friday.

In addition, Biden is scheduled to deliver his first address to a joint session of Congress next Wednesday. The market will be watching for more details on his tax increase plan.