Gold broke record highs to levels not seen since September 11, as a combination of bullish fundamentals that drove prices on a perfect storm to new records.
Gold prices started surging early last week after European leaders agreed on a huge stimulus budget to boost their economies. This backdrop has encouraged the buying of gold both as a safe-haven and for investment from retail and institutional investors.
Adding to gold’s bullishness, US law makers are reaching some agreement on passing another $1 Trillion pandemic relief program. The Fed’s FOMC starts Tuesday/Wednesday, which although is not expected to cut interest rates or announce any new QE program, is however expected to maintained its dovish stand which would continue to be bullish for gold.
What is also pushing gold higher is the drop in Treasury yields. The US 10yr yields fell below 0.6% this week and press real rates, the key driver of gold lower. The US and China ordered closing of each other’s consulates which added to already high Sino-US tensions and increased the appeal of gold as a safe -haven. The US Dollar Index fell to nearly 2 year lows which also added to gold’s allure.
Covid-19 pandemic continues
Meanwhile Covid-19 continues spreading unabated in vulnerable regions of the world with some nations experiencing its 3rd wave. With no vaccine being effectively available, the coronavirus would continue its path of demand destruction and increase stimulus expectations from central banks and governments.
Although gold prices have been in an uptrend since the beginning of 2016, the uptrend took a firmer upturn as the spread of the coronavirus gained momentum and gold’s appeal as a safe-haven became more apparent. Prices finally broke through the formidable $1800 resistance and surged towards $1900 last week, reaching new record levels above $1921.
What is likely to happen next?
The fundamentals driving Gold such as low real rates, a weaker Dollar, tensions between China and US and continuing central bank support would continue to support and sustain gold prices.
Investment demand for Gold would still continue to drive prices higher. However, prices have run-up quite fast and may be subjected to a correction. Any dip in price would induce inflows of investment into the gold market. Barring a policy U-turn from central banks, the uptrend in gold would still be intact.
As the gold price is high, any appreciation in price could be subject to profit taking or liquidation. The next target that bull investors have in mind would be the $2000 level. But do expect periods of liquidation as gold reacts to headline news, which should present opportunities for buying on dips.
Technical indicators on the daily charts are showing trajectories which are starting to send overbought signals. The 14day RSI and momentum are in overbought territory but the MACD (moving average convergence divergence) index though lagging is indicating a trajectory that is pointing out a bull.
For the Comex GC Aug20 contract, the next chart resistance is 2000, beyond that lies uncharted territory. Support lies at $1900 and then 1800 and at the 50-day SMA of 1779. The next support lies at the lows of 1706, 1671 followed by 1580. The 1706 support would however be a tough support level to crack.
Comex GC August20 contract
Source: Phillip Nova
Gold hit $1974.90 on 30 July 2020. With high Covid-19 cases and tensions between US and China, will gold climb higher? Trade zero-commission Spot Gold & micro-sized Gold Futures with Phillip Futures. Click here to try a demo today.
This research was kindly contributed by Phillip Futures.
(By ZUU online)
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