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Optimism over global recovery weakens gold despite weaker dollar

A weekly market summary for gold, June 1-5

GOLD prices started the week on a strong note buoyed by a weak US dollar in early weekly trading. Comex benchmark August GC gold contract touched a high of US$1,761 an ounce.

Weakness in the dollar index which had dropped to more than a two-and-a-half-month low, helped sustain bullishness in gold.

The dollar had tumbled on continued street unrest in the United States.

However, as more and more nations started to reopen from lockdowns and optimism grew for a global recovery, reopening of economies reduced the appeal of safe-haven assets. Gold dropped as global stocks rallied.

A weakening dollar, after providing initial support for gold, was largely ignored by gold traders despite a weakening dollar index which dropped further as the week progressed.

Gold found some support additional strength after stimulus measures by the European Central Bank (ECB) boosted hopes for a recovery in the eurozone economy. The ECB added 600 billion euros (S$948 billion) to its Pandemic Emergency Purchase Program (PEPP) and extended the programme from the end of this year to June 2021.

The EUR/USD also moved higher after the German government passed a second coronavirus rescue package worth 130 billion euros.

Expanded QE programmes have been supportive of gold.

Technical Analysis for Comex August Gold Futures (GCQ20)

Technical indicators on the daily charts are showing that trajectories are flat or are turning lower. The 14-day RSI is just below the mid-50 level suggesting weakness in the gold market.

The MACD (moving average convergence divergence) index has also formed a mild downward sloping trajectory but it is not sharp.

Most other indicators also point to retracing prices.

Immediate support is at the 50-day moving average is at the psychological US$1,700.

Next support lies at the weekly low of US$1,690, followed by the low of US$1,666.2, the higher hurdle above would be at US$1,776 and then US$1,800.

Weekly Market Assessment

The fundamentals that have been driving support of gold remain unchanged.

Economic data from the US and globally continues to show the extremely negative impact of last month's shutdowns on commerce. This will be a key reason for believing in higher prices for gold.

  • The writer is senior manager, commodities, Phillip Futures.

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