Gold bulls breathed a sigh of relief as the metal rebounded from Tuesday lows to hit as high as $1,815.29 an ounce, pulling up around $40 from its lows to move back above its 200-day moving average. But there is a key hurdle to restarting the rally, which is heading back to the downside path opened in early August, so investors will need to see if they can get back inside. The dollar’s further tumble over the course of the day has provided effective support for gold at a time when vaccine progress is racing against a worsening winter pandemic and financial markets remain in a state of many uncertainties, leading to more volatility towards the end of the year and the first quarter of next year.
The Organisation for Economic Co-operation and Development today cut its forecast for global growth in 2021 by 4.2 per cent, down from 5.0 per cent previously. The U.S. economy is forecast to grow 3.2% in 2021, compared with 4.0% previously. Oecd chief economist Laurence Boone says much more needs to be done on the policy front. If there are problems with public health or fiscal policy, confidence will again be lost and the economic outlook will be even bleaker.
At the same time, geopolitical risks in many countries also continue to cause concern. The death of Iran’s top nuclear scientist, Mohsen Fakhrizadeh, on June 27 was followed by the reported death of a senior revolutionary Guard commander in an air strike. Rising tensions in and around Iran have raised the prospect of a sharp rise in risk aversion.
For the Us Federal Reserve, Chairman Colin Powell yesterday said recent vaccine news was very positive for the medium term, but stressed that the pace of improvement in the Labour market had slowed and said the rise in confirmed cases was worrying and could prove challenging in the coming months. The Federal Reserve has extended several emergency lending programs until March 31, 2021, showing the severity of the economic impact of the winter outbreak in Europe and the United States, which appears to mean major central banks will have a hard time tightening monetary policy any time soon. The outcome of the US election has been decided and the trend towards political stability in the US has put the prospect of another round of fiscal stimulus in the spotlight again. All this is expected to boost gold prices.
Former Federal Reserve Chair Janet Yellen has been confirmed as the new Treasury secretary by Biden’s team. If confirmed, Ms Yellen would be the first woman to head the Treasury Department in more than 200 years. That has injected more confidence into the looser outlook, which has been bullish for gold.
From a technical point of view, for longer term trends, the possibility of a return to a long-term uptrend should gold signal a weekly break and climb above $1,800 or even $1,876, which is expected to increase with a gradual decline after gold breaks the $1,800 barrier.
If gold’s daily chart confirms a break above 1800, there may be room for further rallies, with potential upside resistance focused on 1820 and 1835(61.8 percent fipo retracement). If blocked by 1800, it is possible to resume the downward trend. If such a situation occurs, the initial support will continue to focus on the vicinity of 1765, and the further support will focus on 1730.
“Gold has been crowded for a while, so we’re seeing a reallocation of assets away from gold and into riskier assets as sentiment improves,” said Michael Langford, managing director at consultancy AirGuide. But that flow could quickly reverse as the economy becomes more pronounced.”
Ole Hansen, head of commodity strategy at Saxo Bank, said he remains bullish on gold in the short term. Hansen says he sees weaker prices as a buying opportunity.