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GOLD REPORT

Gold prices drift with no US stimulus agreement

A weekly market summary for gold, Oct 19-23

GOLD futures generally spent the week drifting and reacting to sentiment that shifted according to "news" on a fresh stimulus package from US politicians that "talks" are progressing and would conclude soon.

Most of the trading in gold was within last week's range, with precious metal prices undercut or supported by signs of progress - or lack thereof - on pandemic relief. Funding for state and local governments remains the key issue as a remaining stumbling block to a deal. Even if an agreement is reached and the bill is passed by the House, there is no assurance that the Republican Senate will pass the bill.

Gilead Sciences' antiviral therapy remdesivir, sold under the brand name Veklury, became the first drug to obtain formal clearance from the US Food and Drug Administration for treating the coronavirus. The approval came just hours before the final US presidential debate. The World Health Organization (WHO) last week said that its global trial of Covid-19 therapies showed that remdesivir did not have a substantial effect on patients' length of hospital stay or chances of survival. If the therapy gains favour worldwide, it would be bearish for gold.

What should investors look out for in the longer term?

Traders will be watching out for who wins not only the US presidential election but also the contests for a third of the seats in the US Senate. Currently, the Republicans hold a small majority, but a sweeping win by Democrats would see them holding majority in both the branches. Further, if Donald Trump loses, the Democrats would easily approve a much larger stimulus package, which would be bullish for gold.

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In the longer run, demand for gold from jewellers and central banks will remain sharply lower in 2021 than before coronavirus. Nevertheless, investors would keep prices high by stockpiling record amounts of bullion as an asset that is perceived to hold its value through the pandemic. Concerns about the sustainability of gold prices at high prices remain as sales of jewellery in Asia, previously the biggest driver of the bullion market, have continued to slow. However, investment demand would continue to plug the demand gap.

Technical Analysis for Comex December Gold Futures (GCZ20)

Trading for the week had been lacklustre with most short-term technical indicators on the daily charts for gold showing signals that indicate uncertainty and consolidation. The 14-day RSI has a flat trajectory hovering at the mid-point range. Medium-term indicators have recovered somewhat, and indicators like the MACD have trajectories pointing upwards after a bullish crossover last week, indicating a recovery albeit a weak one. Major support for the GC Dec contract lies at the recently low of US$1,850, and resistance is at US$1,940, then the US$2,000 psychological level lies ahead.

  • The writer is senior manager, commodities, Phillip Futures

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