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Gold consolidates after a blistering rally

A weekly market summary for gold, Feb 24-29

GOLD extended its climb to new highs this week but stopped short of the US$1,700 an ounce psychological level. Spot gold touched a high of US$1,689.56 before retracing. Gold had been in consolidation and moving in a sideways pattern since.

Investors had rushed into gold as a safe-haven asset on concerns that the Covid-19 virus would derail global growth. Markets moved on fears that business activity in major economies would shrink as global supply chains are disrupted. The outbreak has worsened in many countries outside of China, which could lead to more accommodative monetary policy. A loose monetary policy is bullish for gold. The US dollar had fallen together with Treasury yields and equity prices, all movements which are supportive of gold. Such a investing environment has enhanced gold's attributes as a perennial safe-haven asset.

What should investors look out for in the longer term?

The Covid-19 factor has been supportive for gold as a safe-haven asset, as the number of unknowns about the spread of the pandemic remains large. If the virus spreads uncontrollably, it would increase gold's appeal as a safe haven.

The financial markets meltdown in developed nations, coupled with low interest rates, would bolster investment demand for gold. Net gold purchases by central banks, the largest holders of physical gold, are expected to remain robust.

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On the other hand, physical demand of gold in India and China, with expectations of weaker economic growth in other large consumers, may result in weaker demand.

Technical Analysis for Comex Futures April Gold (GCJ20)

Technical indicators have come off overbought conditions and gold prices are consolidating in a tight sideways pattern. Minor resistance levels for the April Comex Futures are at US$1,666 and US$1,690, whilst support stands at US$1,627 an ounce. Minor resistance levels for the April Comex Futures are at US$1,666 and US$1,690 while immediate support stands at US$1,627. Top side target stands at US$1,700.

Weekly Market Assessment: Despite the consolidation, gold remains well positioned for a bullish trend.

  • Avtar Sandu is senior manager, commodities, Phillip Futures Pte Ltd

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