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Gold futures getting very comfortable with US$1,800
THE Comex GC August Gold futures spent most of the week consolidating around the US$1,800 level in the absence of any new strong fundamental drivers. It touched a high of US$1,829.80 the previous week but prices have not been able to follow on higher. Since Monday this week, gold prices were susceptible to bouts of profit-taking by short-term traders as prices rise, and then buying on dips. Longer-term traders stayed aloof early in the week while awaiting the start of the earning seasons in the US.
Although physical gold demand, especially in the jewellery sector, had been weak lately with India and China importing less, gold remains supported with the worsening of the coronavirus pandemic in the US and elsewhere, which may prompt state governments to keep lockdowns in place. The US dollar which was weaker throughout the initial part of the week also supported gold prices.
Optimism that the EU would pass a huge recovery plan by Friday helped sustain gold prices. But the ECB kept its monetary policy unchanged, which prompted long-side traders to lock in profits. Bullish gold investors who were expecting new measures or lower interest rates were disappointed.
Yet, gold has been supported by escalating Sino-US tensions with tit-for-tat measures announced daily, and this has kept investors wary. The reimposition of lockdowns in some US cities and increasing number of hot spots popping up throughout the world have been a constant reminder of safe-haven assets like gold.
Technical analysis for Comex August Gold Futures (GCQ20)
Technical indicators on the daily charts are showing trajectories with mixed signals. The 14-day RSI, though higher above the mid-50 level, has tapered off towards the end of the week, suggesting a market that is consolidating. The MACD (moving average convergence divergence) index has crossed with a slightly downward sloping trajectory that is not steep. Short-term momentum has been weaker throughout the week.
For the Comex GC Aug 20 contract, the next resistance is at US$1,830 and US$1,900. Support lies at US$1,757 at the 50-day SMA, and the 14-day SMA at US$1,800 should provide some clues as to immediate short-term strength or weakness. The next support lies at the lows of US$1,706, US$1,671 followed by US$1,580. The US$1,706 support would however be a tough level to crack.
If the US$1,800 barrier is breached, the next high target is US$1,900. Although the gold uptrend remains intact as the macroeconomic environment has not changed, the path to higher prices would be marred by periods of liquidation. With gold prices at yearly highs, any breaking to new highs would also be occasion for taking some profit.
- The writer is senior manager, commodities, Phillip Futures