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GOLD REPORT

Gold breaks out on rising tensions and increasing unemployment

A weekly market summary for gold, May 11-15

GOLD futures spent most of this week consolidating above the psychological US$1,700 level, breaking out of consolidation when poor US unemployment data heightened concerns about its economy. Traders had already been concerned that nations would ease lockdowns too quickly. Investors bought gold on comments from central bankers which mostly were bullish for the safe-haven asset.

Comex Gold Futures traded higher this week on dovish comments from central bankers. US Federal Reserve Chairman Jay Powell warned that the central bank may have to do more to support the US economy, even though he downplayed the chance of cutting official interest rates below zero. He said the outlook is highly uncertain and downside risks significant, and said more fiscal aid may be worth the cost to limit lasting economic harm. Additional stimulus is positive for gold prices.

Trade tensions between the US and China erupted again late this week, boosting demand for the safe asset, after President Donald Trump said he did not want to talk with Chinese President Xi Jinping and was "looking at" Chinese companies that traded on the NYSE and Nasdaq exchanges but did not follow US accounting rules.

Gold prices broke sharply out of their consolidation pattern to their highest in over two weeks, after US data showed that the total number of US job losses due to the Covid-19 outbreak climbed to around 36 million, helping to reinforce expectations of a prolonged period of economic weakness that will require further support from both the government and the Fed, which would be positive for gold.

Technical Analysis for Comex June Gold Futures (GCM20)

Technical indicators on the daily charts are beginning to show trajectories which are pointing up. The 14-day RSI is further above the 50 mid-level after failing to break below 50 in the last two weeks. The GC June contract finally broke out after being wedged in between, in a symmetrical triangle with an upward sloping trend line support from April 21 and a downward trending resistance line from April 23.

Next resistance is at US$1,768 and US$1,800, whilst the next immediate support lies at US$1,683 and the low of US$1,666.

Weekly Market Assessment

Economic data from the US and globally continue to show the extremely negative impact of last month's shutdowns on commerce. This in turn will serve as a constant reminder to investors that all is still not well with the entire world. This has been good news for gold, and a key reason for believing in higher prices for gold.

  • The writer is senior manager, commodities, Phillip Futures

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