· Gold on Tuesday eased from a near one-week high hit in the previous session due to a stronger dollar and an uptick in equities as China’s factories slowly return to work amid rising death toll from the coronavirus epidemic.
Spot gold edged lower by 0.2% to $1,568.11 per ounce by 0344 GMT. The metal touched its highest since Feb. 4 at $1,576.76 on Monday. U.S. gold futures fell 0.5% to $1,571.70.
· Investors switched to the safety of the U.S. dollar and the Japanese yen as China reported 108 new deaths, taking the total death toll to 1,016, as doubts lingered about how quickly the country’s factories could get back to work.
· “The dollar index has been trending higher since late January and early February, that’s one of the factors keeping a cap on gold prices,” said ING analyst Warren Patterson, adding gold’s trajectory would depend on how central banks respond to the economic impact of the virus.
“Do we see further easing as a result of the virus? If yes, then we’d see underpinned support for gold prices.”
Asian shares bounced back, following through a record run in Wall Street. Chinese policymakers are expected to roll out more stimulus measures, including more fiscal spending and interest rate cuts.
· In the United States, two Federal Reserve policy markers played down the impact of the virus on the domestic economy, with focus now on Fed Chair Jerome Powell’s testimony before Congress.
Powell is expected to reiterate that the U.S. economy is doing well but that interest rates can stay low given subdued inflation.
Gold is highly sensitive to any reduction in interest rates, which decreases the opportunity cost of holding non-yielding bullion. Rate cuts also weigh on the dollar, in which gold is priced.
However, some analysts said the economic risks from the coronavirus could prompt a change in the Fed’s stance.
· “The nCoV adds to a growing list of economic growth concerns that could see the Fed shift into dovish gears later in 2020,” said Stephen Innes, chief market strategist at AxiCorp, in a note, adding a dip in U.S. treasury yields was also “perceived support” for gold although the main driver would remain Fed policy.
· GOLD H1 Sell: Retest of breakout area
GOLD H1 Sell:
> Break of bullish channel .
> Retest of breakout area and resistance.
> Signs of bearish pressure.
> More risky due to safe haven commodity from Coronavirus talks.
Trade Idea:
> Entry: 1575.00
> Stoploss: 1580.00
> Take Profit: 1553.00
· Higher prices ahead for gold, metal to average above $1,600 by July, says TD Securities
“Gold continues to hold strong in the range, with the haven demand driving the marginal price action to the top and bottom of the range. The gold trade is certainly crowded, contributing to the recent range-bound trading, but we expect that investment demand for the yellow metal will grow as the suppression of real rates across the globe will keep the gold bug alive in 2020,” the strategists wrote on Monday.
TD Securities uses its new ChartVision-Hedging Implied Levels (C.H.I.L.) to forecast gold prices.
With gold futures trading above $1,570 an ounce, there is room to move higher, the strategists said.
“A robust and broad timing signal in gold argues for higher prices still. Indeed, TD's ChartVision tool implies that some 59% of all 75 technical signals are currently pointing long, implying strengthening upside momentum in the breadth-based indicator,” they wrote.
This matches up with the bank’s positive outlook on gold, which is based on the Federal Reserve’s willingness to cut if needed but staying pat on rates even if inflation does accelerate.
In its commodity forecasts, TD Securities projects gold to average Q2 at $1,560 an ounce, Q3 at $1,625, and Q4 at $1,650.
· “$1,540-$1,550 is a buy opportunity, and the start of a new floor into a year where growth risks are firmly tilted to the downside,” wrote Scotiabank commodity strategist Nicky Shiels on Thursday. “Technically, the uptrend support since the U.S./China phase one deal announcement has been broken, ensuring $1,550 is the new and tentative floor.”
Coronavirus-related growth fears could force more central banks around the world to ease monetary policies, especially in countries directly impacted by the coronavirus, Scotiabank’s update said.
The U.S. dollar has been capping gold’s upside breakout so far this year, but the $1,600 an ounce remains the yellow metal’s upside target, said Shiels.
“Short-term price reaction ahead of $1,600 was disappointing - many expected Gold to breakup above $1600 and hold as it got handed the new (Corona) catalyst, but its refusal to bust up/out was due to both a stronger US$ (competing for similar safe haven flows) and the lack of physical Asia participation/buying,” the strategists explained.
· Palladium rose 0.2% to $2,359.00 an ounce, silver shed 0.1% to $17.74, and platinum edged higher by 0.3% to $963.46.
Reference: Reuters, Trading view
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