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Covid-19 continues to drive investors to safe-haven assets

A weekly market summary for gold, Feb 10-14

AFTER a new reclassification system of Covid-19 that broadens the scope of diagnoses in China, safe-haven investors flocked back to the market as the number of coronavirus cases jumped. This is despite the dollar index being stronger during the weak. Gold is inversely correlated to the dollar index. A stronger US dollar would make gold costlier for investors holding other currencies.

Gold will likely continue to be a hedge for investors as the market focus returns to the US presidential election and the market sees no definite timeframe for the end of the epidemic.

What should investors look out for in the longer term?

The spread of the virus continues to lower expectations of economic growth in China and other Asian countries. This has already prompted central banks to be more accommodative. Liquidity in markets is often bullish for gold.

Sentiment that the epidemic may worsen lingers on as the number of new cases keep increasing. That is going to provide further support to gold prices. There are also signs that inflation is increasing in China as reflected in the jump in Chinese consumer prices. Inflation is normally positive for gold.

Technical Analysis for Comex Gold (GCJ20)

Gold prices continue to recover from the lows established earlier in the month. The technical support levels of US$1,550 and US$1,540 an ounce remain untested. Top side resistance stands at US$1,600, followed by US$1,620. However on the flip side, should the technical support of US$1,500 collapse, gold prices would test levels of US$1,530 and US$1,520 an ounce level.

Weekly Market Assessment: Supportive and Mildly Bullish

  • The writer is Senior Manager, Commodities, Phillip Futures