Gold futures are trading flat shortly before the regular session opening on Tuesday as hopes for a gradual recovery of the global economy amid the easing of lockdowns capped gains, while deteriorating U.S.-China relations and protests in the United States, which spurred fears of coronavirus spreading, underpinned prices.
Essentially, the current rally lacks the momentum to continue as bullish traders await the next catalyst to drive it higher. National Australia Bank economist John Sharma put it this way, “It appears that there are factors both supporting, and limiting appreciation in the gold price.”
At 10:48 GMT, August Comex gold is trading $1749.30, down $1.00 or -0.06%.
Simmering US-China Tensions
The U.S. is likely to revoke Hong Kong’s special status, and China would retaliate by limiting purchase of U.S. products – putting the China-U.S. trade deal in doubt, and providing support for gold.
Some Optimism about Economies Gradually Reopening
In a sign that the worst of the economic downturn from the coronavirus pandemic might be over, U.S. manufacturing activity crawled up slightly from an 11-year low, and China’s factory activity unexpectedly returned to growth- in May, CNBC reported.
Turmoil in the United States
Some traders said that bullion was supported by fears that the demonstrations over the death of an African American in police custody could worsen the spread of the coronavirus, and hamper the world’s biggest economy’s recovery, said Reuters.
U.S. President Donald Trump stated he would deploy the military, if required.
Buyers Supporting SPDR Gold Trust
Reflecting investor sentiment, SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings rose 0.5% to 1,128.40 tonnes on Monday, the highest in seven years.
With gold prices holding steady even with the U.S. Dollar on the defensive, we have to conclude that demand for risk is probably the main reason prices are being capped. We’re going to key on that factor over the short-run. Basically, we’re going to have to see a meaningful stock market correction to rev up the short-term bulls.
Longer-term, the possibility of more fiscal and monetary stimulus means higher prices are still a possibility. In this case, investors should watch the coronavirus numbers because a second wave of the virus will likely slow down the recovery process.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
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