Price of Gold Fundamental Daily Forecast – Sideways to Better as Investors Await More Stimulus
MeasuresGold seems poised for a return of volatility, but we’re not likely to see it unless there is more stimulus or COVID-19 is brought under control.
After experiencing some early session weakness and putting its weekly winning streak in jeopardy, gold futures are trading higher at the mid-session on Friday. This puts it in a position to post its sixth consecutive weekly gain.
The catalysts providing support are flat demand for higher risk assets, lower Treasury yields and a weaker U.S. Dollar. The hope of more global fiscal and monetary stimulus is helping to generate the most buying interest in my opinion.
At 17:18 GMT, August Comex gold is trading $1809.90, up $9.60 or +0.53%.
Since hitting a new contract high on July 8, gold has been struggling to maintain its upside momentum. The support is there with longer-term investors buying every significant dip since April, but the short-term trade has been mostly sideways as traders grapple with strong demand for higher-risk assets and the occasional rally in the U.S. Dollar due to renewed safe-haven demand.
Ultimately, it’s the direction of Treasury yields that determines the direction of gold prices because they are competing assets. Usually, government debt is the more attractive safe-haven investment. Not only is it guaranteed, but it also pays interest. However, the closer yields move to zero percent, the stronger the demand for gold, which pays nothing to hold it.
Saying that the surge in coronavirus cases is driving gold demand is not necessarily a valid statement. It may be the easiest headline to write, howeve
The way I see it, a jump in coronavirus cases leads to speculation that some U.S. states and foreign countries will partially shut down again, raising fears the economy and labor market will continue to struggle.
A setback in the economy and labor markets will increase calls for more fiscal assistance from governments and more monetary assistance from central banks. That’s what bullish gold traders are betting on.
The long-term bullish factors driving gold prices remains intact with real interest rates low. The short-term factors are enough to support gold and prevent a price collapse, but it’s going to take the announcement of new stimulus measures to send prices higher.
One such event is the European Union’s proposed stimulus package designed to kick-start the Euro Zone’s COVID-hit economies. Another is an additional stimulus package from the United States.
Short-Term Outlook
Over the short-run gold investors need to see some fresh stimulus to drive prices higher. Otherwise, prices could become rangebound, but not necessarily bearish as traders wait out the development of a vaccine to fight coronavirus.
The market seems to be poised for a return of volatility, but we’re not likely to see it unless there is more stimulus or COVID-19 is brought under control.
David