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Gold stages recovery after sell-off

A weekly market summary for gold, Aug 10-14

THIS week in gold was characterised by a sharp sell-off to a two-week low, triggered by US producer prices unexpectedly rising higher.

This boosted US 10-year Treasury yields and sparked a bout of massive long liquidation in gold, already pressured by rising bond yields globally.

The dollar started the week on a stronger note and further pressured gold. The benchmark Comex GC Dec 20 contract sank more than US$200 in less than a week to a low of US$1,874.2 as longs rushed to exit in a panic.

Gold made a dramatic recovery as buying on the dips emerged below US$1,900, settling above the psychological US$1,900 by the end of the trading day.

Dovish comments from the Fed also help gold prices recover, while the dollar also weakened.

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Towards the end of week, gold continued to recover as the dollar faltered on increased inflation expectations in the US after comments from the Fed suggested that they favour more debt.

Technical Analysis for Comex December Gold Futures (GCZ20)

Technical indicators on the daily charts are showing mixed signals after the sell-off and recovery.

The 14-day RSI which had risen above the mid-level indicates recovery. Medium-term momentum has however turned negative, as the MACD (moving average convergence divergence) index generated a crossover sell signal earlier in the week.

For the Comex GC Dec 20 contract, the major chart resistance is at US$2,000 psychological level, also a support level turned resistance, followed by the recent high of US$2,063.

Support lies at US$1,870 at the 50-day SMA and then US$1,820 and US$1,800.

Despite the sell-off, the next target of US$2,100 by the end of Q32020 and US$2,200 by end of 2020 remains intact as the fundamental drivers have not structurally changed.

Still-rising numbers of Covid-19 cases and fresh waves in the outbreak continue to weigh on economies, while GDP numbers across the world are already showing recessions. These remain key factors for gold's safe-haven appeal.

  • The writer is senior manager, commodities, Phillip Futures

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