GOLD prices recovered ground above the US$1,800 psychological trading level this week, after collapsing on lower safe-haven demand due to progress in development of Covid-19 vaccines.
The US dollar slipped lower as investors perceived less demand for the greenback as investments moved out of the US. Market sentiment continued to weigh on the dollar, providing impetus for gold to rebound off last week's lows.
Gold had slipped to a five-month low at the opening of the week as appeal for the safe-haven dampened on vaccines development and effort to get approvals picked up pace. Gold prices subsequently picked up on concerns that the global economy may suffer in the near term from the recent surge in Covid-19 infections in the US and Europe.
The precious metal also rose on news that US congressional efforts to pass additional coronavirus relief had crept ahead. The sudden emergence of the proposals after a six-month stalemate followed evidence that surging Covid-19 cases are undermining the economic recovery as past fiscal support was running out.
What should investors look out for in the longer term?
The downward spiral of the US dollar had been providing impetus to hold gold as a safe haven. The major American banks Citi, Goldman Sachs and Morgan Stanley are all going for a weaker dollar. The greenback has been spiralling lower, probing levels last seen in April 2018 for the dollar index. The tumble is part of a broader move across financial markets to price in brighter growth prospects for 2021 and the potential for superior investment opportunities outside the US, in large part as hopes for a coronavirus vaccine build, reported Bloomberg. Gold stands to benefit in the long and short term from the weak US dollar.
Vaccine development and distribution have started to pick up pace. Britain became the first country to approve mass vaccination of its citizens. Although Pfizer expects to roll out more than a billion doses next year, logistics and supply-chain problems persist and its efficacies on the mass market have not been proven. However, if an effective vaccine does become readily available, it would be a game-changer for gold.
Technical analysis for Comex February gold futures (GCG21)
The precious metal drifted down past the US$1,800 support last week and recovered after hitting a low of US$1,767. Despite the recovery, the technical picture of gold has deteriorated and made a dent in the rally. With prices staying below US$1,850, the shorter-term technical picture is still weak. Gold futures slow grind upwards has so far been mainly driven by a reaction to the weakening of the US dollar. The short-term trend would still technically be down - unless gold closes the week above US$1,850 and trades above US$1,900 next week. The moving average convergence divergence indicator (MACD) is, however, poised to cross over and higher prices would confirm a long-term recovery. Momentum would wane unless prices close the week on strong note. The major support for the GC Feb contract lies at US$1,767 and then US$1,700. Immediate resistance is at US$1,850, followed by US$1,900.
- The writer is senior manager for commodities at Phillip Futures
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