Gold's bull rally rattled again

THE gold market opened the week on a positive note, held up by increasing Sino-US trade tensions and a weaker US dollar. The market was also buoyed by Warren Buffett's Berkshire Hathaway Fund buying a stake in a major gold miner. Meanwhile, yields on US 10-year notes continued to slump.

Market bias was bullish as attention turned to the Federal Open Market Committee (FOMC) meeting in July, in which gold investors expected the Fed to continue to reassure markets. The FOMC minutes however disappointed, indicating that the Fed, though concerned about economic recovery, had a less dovish stand than expected. The Fed outlook triggered a rebound in both the dollar and Treasury yields, depressing gold to below US$1,900 an ounce.

US initial jobless claims unexpectedly rose to above one million and supported gold's recovery from its deep slide. Though the dollar remains weak and 10-year bond yields soft, the FOMC minutes rattled gold's rally, despite long-term fundamentals remaining unchanged.

A vaccine is still not available and unless one is made readily available, the possibility of a second wave of the virus remains. Also, industries and jobs have not fully recovered, and central banks will keep interest rates low, which will boost gold investment demand.

Technical analysis for Comex December Gold Futures (GCZ20)

Technical indicators on the daily charts at the end of the week are sending mostly bearish signals after the sell-off. The 14-day RSI, at the mid-50 levels, is however indecisive and sending mixed signals. Medium-term momentum has turned negative, as the MACD (moving average convergence divergence) index has a trajectory that is moving lower, indicating weakness in the gold prices.

For the Comex GC Dec20 contract, the resistance at US$2,025 remains intact, at the low set two weeks ago where a previous support has now turned to resistance. The resistance level was tested this week and found wanting when the contract just touched a daily high of US$2,024.6. Support lies at US$1,896 at the 50-day SMA. Strong support is at the recent low of US$1,874 and then US$1,820 and US$1,800.

Market assessment

Despite the massive sell-off, the fundamentals that have been pushing gold remain unchanged as the structural market drivers that drove gold to record highs remain present.

Still, the bull's rally in gold has seen its first significant retracement since mid-March, and volatility is expected to be higher in the market.