The precious metal market has seen a resurgence of momentum after suffering its biggest weekly loss since March. December gold futures last traded at $1,989.90 an ounce, up 2% on the day. The yellow metal briefly pushed to $2,000 before falling back down.
While the gold market has been in the spotlight, some analysts have noted that silver is the metal investors should keep an eye on. Silver outperformed gold Monday with prices rallying more than 5% during the session. September silver futures last traded at $27.55 an ounce, Kito reported.
Gold and silver saw consistently higher prices through the Monday session as a weaker U.S. dollar and disappointing global economic data came in during the weekend.
Looking at gold, analysts have said that after Monday’s rally to $2,000 an ounce will be the key level to watch this week as the precious metal appears to be entering a new consolidation period.
“Tuesday will be an important day for gold and we need to see if we get some following through buying after today’s rally,” said Charlie Nedoss, senior market strategist with LaSalle Futures Group.
Nedoss added that last week’s selloff, while significant, was a healthy correction for the market. He added that with a weaker U.S. dollar and falling bond yields, he is not surprised that gold has made a strong comeback at the start of the week.
Although bond yields started the day near a one-month high, they have seen a steady decline Monday afternoon. U.S. 10-year bond yields last traded at 67 basis points, down more than 4% on the day.
“This move in the bond market is definitely a bullish environment for gold,” Nedoss said. “The question is: can this help gold break above its 10-day moving average at $2,000 an ounce.”
However, it’s not just U.S. markets that are helping the gold market recover its lost ground. Bill Baruch, president of Blue Line Futures, said that rising geopolitical tensions between China and the U.S. are creating a win-win scenario for the precious metals markets.
Not only are China and the U.S. nowhere near close to resolving their trade and economic issues but overnight, the Chinese central bank unleashed more stimulus measures to support its faltering economy, which has been pressured by U.S. sanctions and devastated by the COVID-19 pandemic.
George Gero, managing director at RBC Wealth Management, said that he thinks it’s only a matter of time before gold prices push back above $2,000 an ounce.
“Gold still has everything going for it,” he said. “Looking past all the technical factors, there are still fundamental reasons for investors to hold gold and for prices to go higher,”
Tuesday markets will be paying close attention to the U.S. housing market as the U.S. Census Bureau and the U.S. Department of Housing and Urban Development release construction data for July.
“No Entry” for bears
Irrespective of the latest softness in gold prices, the sellers are still barred amid factors challenging the market’s risk-tone sentiment, Fxstreet reported.
Among them, theCovid-19 pandemic takes the front seat as global leaders are jostling to find any cure to the deadly virus. The recent numbers ease from the US, likely due to the fewer testing, but the record death toll in the latest epicenter Victoria joins the fresh rise in cases from France and Germany to keep the fears of the virus on the table.
Secondly, the US-China tussle turns bitter as the Trump administration keeps increasing the hardships of companies from Beijing. Despite the recently stalled trade review meet, American diplomats announced punitive measures for Huawei in the latest attack on the dragon nation.
Moving on, the US Congress fails to match market expectations of another trillion-dollar stimulus amid political differences. The latest raw pushed the Senators to call a month-long off to the House before resuming the work to discuss Post Office issue.
It should be noted that the recently announced US NY Empire State Manufacturing Index offered the fresh blow to the US dollar index (DXY) that gradually drops toward the 26-month bottom marked early in the month.
Amid all these catalysts, Wall Street offered mixed clues whereas S&P 500 Futures stay clueless near 3,380 as we write. Further, the US 10-year Treasury yields dropped 1.8 basis points to 0.69% by the end of Monday’s North American session.
Given the lack of major data/events up for publishing amid the Asian session, gold traders may witness an additional weakness unless any risk-negative headlines cross the wires.
Why gold price uptrend is intact
The selloff last week did not impact the longer-term uptrend in gold, according to Standard Chartered, which sees weaker U.S. dollar and lower interest rates as the two driving forces behind the gold price rally, according to Kitco.
“Despite the steepest sell-off since April 2013, the longer-term outlook remains constructive for gold,” said Standard Chartered precious metals analyst Suki Cooper.
Before last week's jaw-dropping pullback of nearly $200, gold looked overbought and further price gains looked uncertain.
“It will be key whether this profit-taking materializes as short-term tactical liquidation, or increased vulnerability across gold-backed ETPs, prompting caution about upside risk. Open interest and net outflows suggest that investors have liquidated stale longs, not strategic positions,” Cooper wrote on Friday.
The downside risks for gold for the rest of the summer and fall are COVID-19 vaccine, swift economic recovery, weak physical demand for gold, an increase in recycling, and more ETP outflows on rising real yields, the analyst pointed out.
Important element in all of this is that investors do not appear fatigued by the price action in gold, following a massive summer move up towards $2,100 an ounce.
“Barring further profit-taking, we think the longer-term uptrend is intact given USD weakness and the scale of stimulus and as we expect interest rates to remain low or negative. Price dips are likely to be viewed as buying opportunities as the macro backdrop remains favourable for gold,” Cooper noted.
At the time of writing, December Comex gold futures were trading at $1,993.90, up 2.26% on the day.
All of the long-term drivers remain in place — negative real rates, weak U.S. dollar, and inflation expectations.
“Over the past two weeks, gold prices have signalled greater risk aversion than other assets that usually benefit from a flight to safety, partly as longer-term investors turn to gold as a diversifier. Some of the recent interest in gold has been spurred by expectations of further stimulus measures and concerns that balance-sheet expansion globally could lead to higher inflation,” Cooper said.
The weakest link is the physical demand out of Asia, which is still lacklustre. High gold price in local currencies as well as the coronavirus-related issues are all weighing on demand.
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