Dovish Fed plays down taper talk and Gold finds its mojo

GOLD prices broke higher to a month high above US$1,820 an ounce, after Federal Reserve chair Jerome Powell soothed investor fears by reassuring that he was in no rush to tighten policy.

Sentiment this week has been in favour of bullion, with Mr Powell's reassurances having a muting effect on longer term US bond yields and putting brakes on a resurgent dollar.

Gold prices moved up, trading higher above US$1,820, a resistance level turned support. Prices had been consolidating around US$1,800 in the previous week.

Central bankers around the world have also have raised concerns about risks posed by resurgence of the coronavirus.

China's central bank, the People's Bank of China (PBOC) has reduced the amount of cash most banks must hold in reserve, which suggests growing concerns about the world economy's recovery. Data released this week in China indicated a further slowdown in the country's economic recovery - second-quarter GDP grew 7.9 per cent year-on-year while growing only 1.3 per cent quarter-on-quarter.

The European Central Bank (ECB) governing council meets on July 22 and its president told investors to be prepared for new guidance on monetary stimulus, signalling that fresh measures might be brought in next year after the emergency bond programme ends. The approach sets the ECB apart from some of the world's biggest central banks.

Investors have gravitated into gold priced in euros, and there has been much speculation lately that gold quoted in euros may be a better option for gold bulls than gold priced in dollar terms, given the strength in the American economy compared to the eurozone.

Technical analysis for Comex August Gold Futures (GCQ21)

With investors comfortable that rising inflation would be well managed, traders had priced gold above US$1,820. The changing sentiment is expected to be supportive for further gains, but expect a gradual trend higher with frequent pull-backs.

The technical picture on daily charts is encouraging for bullish investors. The two "double bottoms" chart pattern indicate that a major low has been formed below US$1,700 this year, creating key support levels.

Further bullish interest in gold would push prices into overbought levels, and very short-term technical indicators are already warning of an approaching minor pull-back. The major 200-day trend of gold is now considered as a support level instead of resistance as in the previous week.

Gold prices have to surmount US$1,860 to resume the steady bull trend. Failing to breach the resistance may induce a bout of price consolidation. For now, the most immediate major support lies at US$1,760.

• The writer is senior manager, commodities, Phillip Futures