Spot gold rebounded on Friday after earlier losses slowed, hitting a low of $1,456 in the morning before recovering strongly from that level and is now back above $1,480 as markets continue to focus on the global spread of the disease and its impact on the economy.
Gold was volatile again last day, falling from a high of $1,500 to a low of around $1,463 at one point as a strong dollar put a lid on the rally.
The dollar hit a three-year high against a basket of currencies on Thursday as demand for the greenback remained strong despite recent liquidity injections by global Central Banks.
“If there is one currency that is causing problems and exacerbating the sell-off in global asset markets, it is the dollar,” ING, the Dutch bank, told clients.
On March 19, local time, the federal reserve announced the establishment of temporary liquidity swap agreements with the following central Banks: the reserve bank of Australia, the central bank of Brazil, the central bank of Denmark, the central bank of Korea, the central bank of Mexico, the central bank of Norway, the central bank of New Zealand, the monetary authorities of Singapore and the Riksbank of Sweden.
On March 15, the fed, in conjunction with the bank of Canada, the bank of England, the bank of Japan, the European central bank and the Swiss national bank, announced plans to increase dollar liquidity through dollar liquidity swap lines.
Although the federal reserve has taken measures to ease the liquidity squeeze and the borrowing pressure of the us dollar, it seems that the liquidity crisis in the global capital market has become more and more serious. One analysis suggests that the financial system in global markets is in danger of collapsing if liquidity persists.
Min gyeong-won, an economist at Shinhan Bank, said successive waves of fed action appeared to have failed to calm sentiment but exacerbated the dollar disorder. This is an unprecedented situation, more dollar cash will be cashed in and Asian currencies will continue to weaken.
With the unprecedented uncertainty of a coronavirus pandemic, investors are selling as much as they can to keep their dollar holdings. The coronavirus threatens to cripple the global economy.
“Global markets have confirmed that the dollar is king in really difficult times,” Jim Wyckoff, senior analyst at Kitco Metals, said in a report. The thirst for dollars is perpetuating the turmoil in financial markets.”
“The recent volatility in the bond market has further contributed to volatility in the precious metals market as governments and central banks have introduced additional stimulus measures,” Craig Erlam, an analyst at OANDA, said in a note.
Steve Dunn, head of ETFs at Aberdeen Standard Investments, said the overall sentiment after the U.S. equity rout entered a bear market meant prices would continue to fall, which would weigh on gold in the short term. Gold is expected to trade in the $1,525 – $1,575 / oz range in the coming months.
Georgette Boele, the senior precious metals strategist at ABN Amro, points to more weakness ahead. The forecast for the second quarter is $1,300 an ounce (previously $1,450).
On the daily chart, the U.S. dollar index.dxy began to fall on Friday after three days of gains, and the index continued to fall after hitting 103, falling more than 100 points to below 102 and as low as 101.98. On the technical side, the MACD red kinetic energy column expanded sharply, the RSI index fell from the overbought level, and the KDJ random index was still in the overbought level area, paying attention to the possibility of a correction.
On the 4-hour chart, the dollar index is still in a strong rally starting at 94.63 before turning lower after hitting 103 on Friday, leaving plenty of room for correction. From the technical point of view, the MACD red kinetic energy column is slightly weakened, RSI index and KDJ random index are both from the overbought level down, short or further correction.
On the daily chart, gold’s decline has been slowing, with losses having stalled in recent days at a low of $1,450, a level that could become a short-term bottom, with focus on whether a sustained rebound can break the key 200-day moving average. From the technical perspective, the MACD green kinetic energy column continues to expand, the RSI index is trying to rebound from the oversold level, and the KDJ random index is still in the oversold level, focusing on the possibility of stabilizing the rebound.
On the 4-hour chart, after hitting an earlier low of $1,451, gold has been testing back and forth above that level, and is now rebounding from around 1454 to see if it can be held. In technical terms, MACD red kinetic energy column slightly enhanced, KDJ random index since oversold level rebound, short term is expected to continue to rise steadily.
fundamentals Positive factors :
- The number of confirmed cases of new coronavirus in the United States has nearly doubled since 24 hours ago, according to Johns Hopkins University. U.S. officials say the number of confirmed cases will increase rapidly as testing is rolled out.
- The us state department raised its global travel alert to level 4: do not travel. This is the highest level of tourism safety alert issued by the state council.
- The bank of England said it would hold a special meeting of its monetary policy committee on March 19th to cut interest rates to 0.1%. The bank of England said it agreed to increase its holdings of gilts. Increase holdings of gilts and corporate bonds by £200bn to £645bn. Support money market liquidity.
- Australian prime minister Scott Morrison announced on Thursday that the travel ban will be imposed on all non-australian citizens and non-permanent residents starting from 2pm on Tuesday. Only citizens, permanent residents and their immediate family members will be allowed to enter the country. On Thursday, prime minister Howard Adler announced plans to ban all non-new Zealand citizens, permanent residents and their immediate family from entering the country in an effort to contain the spread of the disease. The ban will take effect at midnight on the 19th.
Fundamental negative factors:
- The European central bank announced a €750 billion ($817 billion) programme of asset purchases to combat the outbreak of coronavirus, fuelling risk sentiment.
- According to a Treasury memo obtained by the Washington Post, the goal of the Treasury’s new pneumonia stimulus plan is $1 trillion, including $2,000 in checks for Americans. The plan could also include $300 billion to help small businesses avoid mass layoffs.
- The dow closed up 1048.79 points, or 5.2%, at 21237.31. The index briefly fell below 20,000 for the first time since February 2017 before rebounding. The s&p 500 rose 6 percent to 2,529.19, while the NASDAQ composite index rose 6.2 percent to 7,334.78.
- The trump administration is discussing a plan that could involve as much as $1.2 trillion in spending to stem the economic impact of the new pandemic, including direct payment of at least $1,000 to every American within two weeks. Treasury Secretary Steven mnuchin has proposed sending a $250 billion check by the end of April and sending a $500 billion check four weeks later if the U.S. remains in a state of emergency, according to people familiar with the matter. The payouts will be part of a stimulus package that Mr. Mnuchin is negotiating with congress.