Gold hovers near 2-week low on hopes of economic recovery
· Gold was trading near a two-week low on Wednesday as optimism around several economies re-opening dulled the metal’s safe-haven appeal, although increasing China-U.S. frictions over Beijing’s proposed security law for Hong Kong tempered losses.
· Spot gold eased 0.1% to $1,710.01 per ounce by 0301 GMT, trading near last session’s low of $1707.10, when prices dropped as much as 1.3%. U.S. gold futures were also down 0.1% to $1,703.20.
· “What we saw over the preceding 24 hours was a break of relatively meaningful support at about $1,715,” said DailyFx currency strategist Ilya Spivak.
“The positive story seems to be easing of restrictions and (that) there will be some sort of rebound in economic activity... but, there is (also) a lot of negativity. Tension between the U.S. and China is a huge risk.”
Asian shares shed some of their recent gains after U.S. President Donald Trump said on Tuesday Washington was working on a strong response to China’s planned national security law for Hong Kong, adding it would be announced before the end of the week.
Despite the pullback in bullion prices, the outlook remains positive for gold, which is seen as a safe-haven asset during political and economic uncertainties, analysts said.
“The biggest risk is people getting complacent and forgetting that the long term consequences of this lockdown are not going away anytime soon and we aren’t going to have the perfect economy,” Spivak added.
· Economic prospects for the developed world this year have darkened again in the past month, with a V-shaped sharp recovery expected by less than one-fifth of economists polled by Reuters.
· Citi sees gold price grinding to $2,000 by 2021
Bullish sentiment for gold continues to build, with another U.S. bank jumping on the all-time-highs bandwagon, even as the price struggles to find momentum in the short term.
In a report published last week, commodity analysts at Citi said that they see gold prices pushing to $2,000 an ounce in the medium term. The analysts said they are bullish on gold as investor demand is expected to remain strong with the global environment of low to negative interest rates.
In its updated forecast, Citi sees gold prices averaging $1,715 an ounce in the second half of 2020. The bank sees gold prices averaging $1,925 in 2021.
Although Citi expect to see higher prices by next year, analysts are not forecasting a major breakout.
“We think prices are more likely to make a slow grind higher, but generally hold a $1,600-1,700 handle, rather than quickly spike to the $1,850-1,950 area,” the analysts said.
Looking at the technicals, Citi sees strong resistance at $1,800 an ounce and support between $1,682 and $1,720 an ounce. Currently, gold prices are hovering just above the bank’s initial support area. June gold futures last traded at $1,728, down 0.43% on the day.
With a prolonged environment of low to negative interest rates, Citi said that rising geopolitical tensions between the U.S. and China and continued uncertainty surrounding the economic recovery – after global growth was decimated by the COVID-19 pandemic – will support safe-haven demand for the precious metal.
It’s also not just gold that Citi is bullish on, as the bank sees higher silver prices in the second half of the year, calling or prices to push to $22 an ounce in the third quarter.
· Commerzbank: Strong ETF gold inflows offsetting weak Chinese, Indian demand
Strong inflows of gold into exchange-traded funds are more than offsetting unusually weak demand from key consuming nations China and India, said Commerzbank analyst Cartsen Fritsch. Data from Hong Kong’s Census and Statistics Department on Monday showed that China exported more gold to Hong Kong (14.5 metric tons) last month than it imported from there (4.2 tons).
Thus, Chinese gold imports from Hong Kong were negative for the first time since records began in 2007. “Normally, Hong Kong serves as the leading import hub for gold to China because Chinese gold demand significantly exceeds domestic supply,” Fritsch said in a research note.
“However, Chinese households have been buying virtually no gold because of the corona crisis and record-high local prices.” China’s imports during the first four months of 2020 were just 17.1 tons, down 89% from the same period last year, Fritsch continued. Meanwhile, he pointed out that gold demand in India has also been weak, with April imports grinding completely to a halt.
“This underlines just how much gold demand and the gold price depend at present on demand for gold ETFs, which has remained extremely robust recently,” Fritsch said. “This month alone, more than 120 tons of gold have flowed into the gold ETFs tracked by Bloomberg. This is significantly more than is normally imported by China and India combined.”
· Palladium fell 1% to $1,937.38 per ounce, platinum slipped 0.5% to $825.90, and silver inched down 0.1% to $17.08.
Reference: Kitco, CNBC
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