GOLD futures spent the week recovering from the chaos caused by the US President Donald Trump testing positive for Covid-19. Investors initially fled to the US dollar and Treasury yields; most felt that US lawmakers would not be able to agree on a fiscal stimulus package with President Trump down with the coronavirus.
Gold traders were bombarded by conflicting news reports from the White House and his medical team regarding Mr Trump's health. The news that the president was recovering and would be back to work soonest helped sustain gold prices. Also, geopolitical tensions were reported between central Asian republics Azerbaijan and Armenia, which sent gold futures to nearly two-week highs.
Bullish optimism soon gave way to dismay as Mr Trump abruptly called off stimulus talks, sending gold prices into another tailspin. The abrupt cancellations came hours after Federal Reserve Chair Jerome Powell warned that the tentative recovery from the pandemic recession could falter unless the federal government supplies additional support. The US president later rescinded and called for new negotiations. Gold futures are expected to close the week on a stronger note as reports continued to surface of new developments in pandemic relief negotiations in Washington.
What should investors look out for in the longer term?
Lately, there has been some demand for gold as an inflation hedge. In the US, the 10-year T-note breakeven inflation expectations rate rose to a four-week high of 1.720 per cent. Inflation expectations are beginning to keep gold supported, on concerns that if present policies continue post-election, the dollar and real rates will likely be lower for a considerable period of time. The fickleness emerging out of policy flip-flops going into the election forewarns that volatility in markets is expected to increase.
Technical Analysis for Comex December Gold Futures (GCZ20)
Most short-term technical indicators on the daily charts for gold are showing bearish signals that do appear to bottom out towards the ending of the week. The 14-day RSI though in bearish territory has a weak trajectory pointing upside, suggesting some recovery. Medium-term indicators, while also in bearish mode, are showing signs of exhaustion with the MACD (moving average convergence divergence) index having trajectories that are beginning to show signs of an imminent crossover.
During the current week, there were signs that technically, the main trend in the short term is pointing downwards, but with Thursday's higher close, the GC Dec contract has left immediate downside support established on Tuesday and Wednesday at US$1,877 as firm and good. However, a convincing break below the support would drive prices to test critical support at US$1,850. A break would be alarming to bulls and reaffirm a very weak technical picture, changing the medium-term technical picture to bearish as well. The contract needs to maintain prices above the weekly resistance at US$1,923 to keep momentum going. The 20-day SMA at US$1,911 is the immediate resistance.
- The writer is senior manager, commodities, Phillip Futures
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