· Gold eased on Thursday as risk appetite was boosted by positive trial results of an experimental COVID-19 treatment, although the U.S. Federal Reserve's decision to keep interest rates near zero kept bullion above the $1,700 per ounce level.
Spot gold fell 0.1% to $1,710.21 per ounce by 0519 GMT. U.S. gold futures rose 0.8% to $1,726.80 per ounce.
· "We have risk sentiment blossoming again, and that's just not a good optic for gold to go higher," said Stephen Innes, chief market strategist at financial services firm AxiCorp.
"But the massive support we're getting from the Fed is underpinning the general trend of support for gold... Gold is going to look very attractive as it doesn't cost anything to hold it right now."
· Risk sentiment got a boost after the top U.S. infectious disease official said early clinical trial results showed Gilead Sciences Inc's experimental antiviral drug remdesivir helped patients recover more quickly from illness caused by the coronavirus.
Asian stocks rose to a fresh seven-week high on the news, while the U.S. dollar held near a two-week low after the Fed left its interest rates near zero and repeated a vow to use its "full range of tools" to shore up an economy hammered by the pandemic.
Lower interest rates reduce the opportunity cost of holding non-yielding gold, which also tends to benefit from widespread stimulus measures as it's often seen as a hedge against inflation and currency debasement.
· Investors also took stock of data showing factory activity in China expanded for a second straight month in April as more businesses resumed work, but a worsening slump in export orders pointed to a long road to recovery.
· Market participants now await a policy decision from the European Central Bank due later on Thursday, amid pressure on the central bank to deploy even more firepower to prop up an economy that could shrink by a tenth this year.
· Pointing to the growing economic pain from the virus outbreak and bolstering demand for safe havens such as gold, the U.S. economy contracted in the first quarter at its sharpest pace since the Great Recession, while economists expect an even sharper contraction in the second quarter.
· GOLD FORECAST: GOLD PRICE EDGES HIGHER AS FED CHAIR POWELL SAYS MORE SUPPORT NEEDED FOR ECONOMY, BALANCE SHEET TO KEEP EXPANDING
Gold prices look set to recommence their upward ascent with Fed asset purchases, and its balance sheet, expected to continue for the foreseeable future. Regarding the coronavirus pandemic, and its crippling impact on the economy, the Fed meeting press statement inject skepticism over the ‘V-shape’ recovery anticipated by the majority of market participants.
Gold price action nevertheless appears to have formed a wedge chart pattern. This comes as the precious metal coils like a spring between its short-term bearish trendline and medium-term bullish trendline. As such, spot XAU/USD might maintain its recent trading range between technical support and resistance around the $1,700 and $1,750 levels respectively.
While surging gold prices may experience intermittent headwinds, as the precious metal runs into intimidating technical barriers or comes under brief selling pressure, bullion is expected to continue its broader advance. On that note, as the coronavirus recession looms and liquidity gushes, there is potential that the Federal Reserve and Fed Chair Powell just catalyzed the next breakout higher in gold price action.
· Gold prices going to "pop" to $2,700, easily - Frank Holmes
Despite a weakened economy, stocks continue to rise on the back of monetary stimulus, which is bound to push gold prices even higher, this, according to Frank Holmes, CEO of U.S. Global Investors.
Stocks are going up “because of the trillions and trillions of dollars of money printing from the helicopters of central bankers. The G20 central bankers, the G20 finance ministers, that’s a cartel, like OPEC,” Holmes told Kitco News.
Fundamentally, gold’s supply deficit should also provide tailwinds, Holmes said.
“Last year, as I’ve mentioned, everyone was surprised that palladium could go from $1,000 to $2,700, and I said short-term, why can’t gold do that?” he said. “We’re going to see gold pop. $2,700 is easy for me to see that.”
· Gold Price Analysis: Bear flag on 4-hour chart
Gold's bounce from the April 28 low of $1,690 has taken the shape of a bearish continuation pattern called bear flag, according to the 4-hour chart.
At press time, the lower end of the flag is seen at $1,700 and the yellow metal is changing hands at $1,710 per ounce.
A break below $1,700 would confirm the flag breakdown – a resumption of the drop from the April 23 high of $1,739 – and create room for a slide to $1,651 (target as per the measured move method).
Alternatively, a move above $1,720 would invalidate the flag pattern.
· Among other precious metals, palladium rose 0.6% to $1,948.51 an ounce, platinum gained 0.1% to $775.19 per ounce, while silver slipped 0.6% to $15.27 per ounce.
Reference: Reuters, FX Street, Daily FX
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