After 'momentary correction' gold price is ready to attack $1,800 and higher – analysts
Gold is looking at another volatile week with an attempt at breaching the $1,800 an ounce level, according to analysts.
The yellow metal is wrapping up a very exciting trading week after seeing prices hit 7.5-year highs and climbing to $1,796.10 on Wednesday. After some consolidation, prices are back above $1,770 with August Comex futures last trading at $1,780.10, up 0.54% on the day.
The risk-off sentiment in the market has been helping gold maintain its bullish momentum, but higher U.S. dollar has been stealing some safe-haven attention from gold. “The U.S. dollar is making a comeback, which is affecting commodity prices,” said Gainesville Coins precious metals expert Everett Millman.
At the forefront of investors’ minds is the rising COVID-19 reinfection rate in the U.S. The number of new cases rose at least 39,818 on Thursday, which is the highest one-day increase in the U.S. to date.
Concerns around how this will impact the U.S. economic recovery has led to another major stock market selloff on Friday, dragging the Dow down 500 points after Texas Governor Greg Abbott rolled back some of the state’s reopening measures. “At this time, it is clear that the rise in cases is largely driven by certain types of activities, including Texans congregating in bars,” Abbott said in a release.
Risk-off sentiment is good for gold but a significant escalation in coronavirus cases could potentially hamper the gold rally because at the end of the day it all comes back to inflation expectations, TD Securities head of global strategy Bart Melek told Kitco News on Friday.
“What we are seeing is a counter-intuitive phenomenon happening. On Friday morning, gold dropped along with equity markets,” Melek said. “The yellow metal's third attempt to break out into the $1,800s was interrupted by renewed virus concerns, which have paused the rise in long-term inflation expectations that we have seen over the past few trading session.”
Also weighing on the financial markets is the Federal Reserve’s decision on Thursday to limit dividend payments and bar share repurchases until at least the fourth quarter following its annual stress test.
Presidential election vibes
The U.S. presidential election is the headlines more and more with the latest poll data starting to make an impact.
“Right now, we are getting close to the presidential election season. For the first time, I am starting to see movement in the markets in reaction to where the polls are. That could shake up the gold market a bit if people think there is going to be a change in office,” Millman said.
The latest data is showing Joe Biden polling ahead of incumbent President Donald Trump in the race to win November's Presidential election, said Capital Economics chief U.S. economist Paul Ashworth.
“Trump's approval ratings have taken a hit from his mishandling of the coronavirus pandemic –including the recent surge in infections in the south and west of the country – and the wave of protests in response to the death of George Floyd,” Ashworth wrote on Friday.
But it is too early to read too much into Biden’s lead in the polls, he added. “The equity market could worry that a Biden victory, coupled with the Democrats winning control of the Senate, would lead to a significant rebound in corporate taxes. But even if the Democrats do win a majority, they will fall well short of a filibuster-proof super-majority in the Senate, which would make it much harder to push through big tax changes,” he noted.
Gold price direction as Q2 is wraps up
Aside from all the drivers on the surface, there is a lot happening behind the scenes due to the month of June ending and the second quarter wrapping up, said Afshin Nabavi, senior vice president at precious metals trader MKS SA.
“It is a difficult market. A lot of financial end-of-quarter, end-of-month squaring off is in order,” Nabavi said.
After testing new multi-year highs, gold always consolidates, which is a great time to buy the precious metal before it heads even higher, Nabavi said.
“I wouldn’t be surprised if we continued this move on the downside momentarily. These are all opportunity to buy for cheap,” he noted. “There is a lot of pressure around the economic recovery in the U.S. … which points to a higher price for gold going forward. The $1,770 held to the upside. Next resistance is going to be $1,780 and eventually $1,800.”
Gold has bounced off the resistance and has gone back to the technical support level of $1,764 and will now consolidate around $1,800 and try to break through, said Melek.
“Much will depend on where the economy seems to be going,” he said. “The big concern for gold is that real interest rates may not go down because inflation may be slow to recover because we are getting re-infections in the U.S.”
A lot of the price moves next week will be determined by the macroeconomic numbers, added Melek. “Good news is going to be good for gold as well,” he said.
Data to watch
Despite being a short week in the U.S. with markets closed on Friday to celebrate the Independence day, there are a number of important data sets to watch.
The biggest market moving day is likely to be Thursday with the U.S. employment report for June and factory orders for May both being released.
“The obvious focus will be the jobs report, which will be published on Thursday due to 3 July being a national holiday. With all states now experiencing some form of reopening, we should see another sizeable pick-up in employment, as workers return to their jobs. We look for payrolls to rise by around 3.5 million, but we have to remember that millions more remain out of work, with Google Mobility data suggesting in many states, especially in populous ones like New York, New Jersey and California, consumer and business activity remains far from normal,” ING economists wrote on Friday.
Wednesday will see the FOMC meeting minutes from June, ADP nonfarm employment change for June, and the ISM manufacturing PMI for June.
“The minutes are likely to confirm the Fed’s accommodative policy. Don’t think we rally on anything here. Powell has already been as bullish as can be. It will be important to watch any nuanced view that the Fed may not be as aggressive as the markets are pricing in,” Melek said.
Other key releases to keep an eye on include May’s U.S. pending home sales scheduled for Monday and June’s CB consumer confidence to be released on Tuesday.
By Anna Golubova