Gold rises to nine-year peak on stimulus bets, silver soars
• Gold rose to a nine-year high on Tuesday as expectation of higher inflation from increased stimulus overshadowed the resultant gain in risk appetite, while silver breached the $20 level for the first time since September 2016.
• Spot gold was up 0.4% at $1,822.11 per ounce by 0730 GMT after hitting its highest since September 2011. U.S. gold futures rose 0.4% to $1,823.80.
“What’s really driving the gold market is stimulus and we are going to get more of it. It’s the eye candy that’s driving sentiment right now,” said Stephen Innes, chief market strategist at financial services firm AxiCorp.
• Gold tends to benefit from widespread stimulus as the metal is widely viewed as a hedge against rising prices and currency debasement. Analysts are, however, divided on the outlook for inflation.
• European Union leaders reached a deal on a massive stimulus plan for their coronavirus-blighted economies after a fractious summit that went through the night and into its fifth day.
• In the United States too, congressional Republicans announced plans to seek another $1 trillion in economic relief.
• Along with stimulus, growing hopes for COVID-19 vaccines boosted riskier assets.
• However, rising coronavirus cases in the United States and elsewhere have added to doubts over a global economic recovery, driving flows into safe-haven assets and helping gold gain about 20% so far this year.
Further helping gold, the dollar fell to a more than four-month low versus major currencies.
• Silver jumped 2.2% to $20.33, its highest since August 2016.
• Palladium rose 1% to $2,075.54 per ounce, while platinum was steady at $843.92.
Gold: Bullish technical set up points to the $1830 zone
· “Gold prices are set to refresh multi-year highs in the day ahead, as the upbeat market mood will continue to pressure the greenback. Also, growing concerns over the economic risks from the continued rise in the infections globally will also likely bode well for gold. Meanwhile, the risk sentiment will remain the main market driver amid a lack of relevant economic news from the US docket.”
“The spot has charted a bull pennant breakout following a close above the falling trendline resistance at $1818.28. The break higher prompted the bulls to test the nine-year highs of $1820.61. Acceptance above the latter will trigger a fresh rally towards the pattern target at the $1827/30 zone.”
· “The Relative Strength Index (RSI) has turned south from the overbought territory but remains well above the midline, indicating room for additional upside. The price trades above all major Simple Moving Averages (SMA), adding credence to the ongoing bullish bias.”
“The immediate downside is likely to be capped by the resistance now turned support at $1818.28. Powerful support awaits at $1816.28, which is the confluence of the bullish 21-HMA and rising trendline (pattern) support. The bulls will continue to guard that level in the near-term.”
· The current situation is very similar to what happened 12 years ago. Gold has been growing steadily for over a year now, having received the initial impulse on the Fed's hints of policy easing and further rate cuts. In the 10 months prior to March 2020, the price of an ounce rose by more than a third to $1700 and then briefly adjusted to $1450. Having stood close to these levels for a few days, gold recovered quickly, gaining since then and yesterday updated its 9-year high at $1820.
Despite the fact that gold looks overbought on some short-term indicators, it should be remembered that an important driver of its growth is the fear of inflation, which can intensify because of abnormal stimulus packages and the need for investors to balance the portfolio because of equally inflated stock prices.
It won't be surprising in such conditions, if before the end of the year gold not only updates the historic highs at $1920, but also tests the level of $2000.
Reference: Reuters, FX Street
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