Gold steadies near 8-year high as virus cases surge
· Gold prices held steady near an eight-year high on Tuesday as investors weighed a spike in COVID-19 cases around the world against a survey showing a rebound in U.S. services industry activity and expectations of a revival in China’s economy.
· Spot gold was almost unchanged at $1,783.56 per ounce by 0652 GMT, just $5.40 shy of a near eight-year high hit last week. U.S. gold futures edged 0.1% higher to $1,794.40.
· “The proliferation of new COVID-19 cases globally has added to lingering nerves, with investors preferring to hedge that risk via gold, even as they load up on equities again,” said Jeffrey Halley, a senior market analyst at OANDA.
· India on Monday overtook Russia to record the world’s third-highest number of COVID-19 cases, while U.S. coronavirus deaths crossed 130,000.
· Gold also followed moves in the dollar index , which recouped some losses, but still held near a two-week low. A stronger dollar makes the metal more expensive for those holding other currencies. Meanwhile, growing expectations of an economic rebound in China and better-than-expected U.S. services sector data lifted investor sentiment towards riskier assets.
· “Gold remains at risk of a short-term correction, given current market positioning,” said IG Markets analyst Kyle Rodda.
“Nevertheless, a break above $1,800 is on the cards, with buyers probably waiting on the other side of that level. In the bigger picture, fundamentals remain very constructive for gold.”
· Indicative of sentiment, speculators increased their bullish positions in COMEX gold and silver contracts in the week to June 30.
· Gold SWOT: Gold above $1,800 an ounce
Ø The best performing precious metal for the week was palladium, up 1.49 percent after falling for previous three weeks. Gold futures rose above $1,800 an ounce for the first time since 2012 on June 30 and ended the second quarter with its best in four years. Bullion also had its longest streak of weekly gains since January, with the week ended June 26 being its third straight. Bank of America head of commodities and derivatives research Francisco Blanch raised his 18-month price target for gold to $3,000 an ounce.
Ø The worst performing precious metal for the week was gold, up 0.23 percent. After rising early in the week, gold retreated on Friday after better-than-expected jobs data. The Bureau of Labor Statistics said that 4.8million jobs were created in the U.S. in June, above expectations of 3 million. Unemployment fell to 11.1 percent, down sharply from the April high of 14.7 percent, reports Kitco News. Gold also retreated on Thursday after news broke of a new experimental vaccine for the coronavirus.
· Gold to perform well in Q3, on track to $2,000 by late-2021 — TD Securities
Gold is likely to have another solid quarter after it wrapped up Q2, up more than 14% since the start of the year, according to TD Securities.
After some turbulent trading near the $1,800 an ounce level, gold is back in a tight trading range right below that resistance level.
“The yellow metal has now rebounded back to over $1,770/oz and will likely perform well into Q3,” TS Securities commodity strategists wrote last week.
Any sell-offs due to positive macro data are likely to only be temporary for gold as higher precious metal’s prices and firmer economy can co-exist alongside each other, the strategists pointed out.
There are some COVID-19 after-effects that will continue to linger long-term, boosting gold higher for the rest of 2020 and into 2021.
“Despite the strong jobs data, wages are lower, labor participation is near the lows and the economy will function at below potential for some time, requiring massive debt-financed fiscal stimulus and low policy rates for the foreseeable future. As such, we are happy with our positive gold view and continue to see the yellow metal trending toward $2,000/oz into late-2021,” the bank's strategists noted.
· UBS looking at what happens after gold price breaks $1,800
Gold prices have room to push above $1,800 an ounce in the near-term but investors should use some cautious when investing at these levels, according to one international bank.
However, with UBS seeing gold’s push above $1,800 an ounce as only a matter of time, Teves said that the real question is what happens next? The comments come as gold prices continue to flirt within striking distance of the long-term resistance level. August gold futures last traded at $1,793.50 an ounce, up 0.20% on the day.
“Does the market currently have the energy to extend the move even further towards the all-time highs; or will investors who have been long gold for some time take the opportunity to take some profits off the table? We think the risk-reward at this point probably favors the latter,” she said.
In the near term, Teves said that the risks for financial markets is how much bad news is already priced in.
“Real rates are already around the lowest levels in seven years – this raises the risk that any bounce from recent lows takes a bit of shine off gold, triggering some unwinding at least in the near-term,” she said.
Despite any short-term volatility, Teves said that she remains bullish on gold in the long-term. She added that investors will see any drop in the gold price as a buying opportunity.
“As long as real yields remain negative, it is deemed sufficient to warrant an allocation to gold in this environment,” she said.
· Elsewhere, palladium dropped 1.2% to $1,915.88 per ounce, while platinum gained 0.7% to $818.84.
“Auto sales have turned positive in China, but revival in other countries looks uncertain. Weak sales will keep auto catalyst demand soft this year,” ANZ analysts wrote in a note.
Silver shed 0.3% to $18.16.
Reference: CNBC, KITCO