You are here

GOLD REPORT

An uneventful week for gold after latest Fed meet

Prices recover from weak start due to concerns over virus resurgence in China

GOLD futures prices started off the week on a weak note on concerns about a resurgence of the novel coronavirus in China, which sparked demand for cash and prompted investors to liquidate other assets, including gold. The benchmark Comex GC August 20 contract touched a low of US$1,706.20 an ounce.

Prices managed to recover from their lows after the US Federal Reserve announced tweaks to its bond buying programme, as it widens support for financial markets. The US dollar dropped on the Fed announcement, buoying gold.

Gold prices also firmed early in the week after Japan and China boosted stimulus measures.

The Bank of Japan (BOJ) boosted the size of its special lending programme to 110 trillion yen (S$1.43 trillion) from 75 trillion yen, and China said it would sell one trillion yuan (S$197 billion) of special sovereign bonds to raise fiscal stimulus money to combat the impact of the coronavirus outbreak.

The Trump administration was also reported to be preparing a US$1 trillion infrastructure proposal to help revive the US economy.

Your feedback is important to us

Tell us what you think. Email us at btuserfeedback@sph.com.sg

Concern about a fresh outbreak of the coronavirus in China was also positive for gold. Beijing's city government raised its Covid-19 emergency response level to 2 from 3 as the number of outbreaks increased to more than 100 in the city.

The city also shut schools and advised people not to travel unless necessary.

In the US, a spike in number of coronavirus hospitalisations was reported in California, Texas, and Florida.

The virus has however been contained in Beijing, said Wu Zunyou, China's top epidemiology expert, and further novel coronavirus infections in the city should be "sporadic". Gold fell back on the announcement.

Gold prices spent most of the rest of the week consolidating in last week's trading range.

Technical analysis for Comex August gold futures (GCQ20)

Technical indicators on the daily charts are showing trajectories are flat. For most of the week, the 14-day relative strength index (RSI) has been hovering around the mid-50 level, suggesting a gold market uncertain of its longer-term direction.

The moving average convergence divergence (MACD) index has formed a mild downward-sloping trajectory, but it is not sharp and, at the time of writing, yet to cross over to suggest a short-term buying signal.

The rally this week had however failed to test last week's high of US$1,754.90. The GC August touched a high of US$1,749.20 this week before reversing.

Although the Fed maintained a dovish stand, it did not announce any large monetary stimulus, which discouraged traders from chasing gold's rally at higher prices.

Buying the dips remains a favourite trading strategy for gold.

Support lies at US$1,671, followed by US$1,690, then the low of US$1,666.20. The higher hurdle above would be at US$1,776 and then US$1,800.

  • The writer is senior manager, commodities, Phillip Futures

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes