Spot gold traded at $1, 625.10 an ounce on Wednesday. Gold held steady for the day, with bulls trying to get into overdrive, now trading as high as $1642.10 an ounce, up more than $20 since the session low. For now, however, the bears appear to be trying to fight back, and gold has just fallen $15 in the short term to hit a low of $1,618 an ounce.
Gold bulls are encouraged that the fed has hit the bottom line
Gold prices surged more than 4 percent in the previous session as the federal reserve’s aggressive new stimulus measures cooled investor fears and halted liquidity operations. Meanwhile, palladium and platinum surged Tuesday, with the metal Posting its biggest one-day gain since 2001, as South Africa, a major producer, declared a blockade because of the outbreak.
Gold closed up $75 at $1, 628.60 an ounce on Tuesday after briefly breaching the $1, 630 mark. On the one hand, the fed has increased the supply of dollars and pushed down the dollar index, making the gold price more positive in dollar terms and highlighting the value of gold. On the other hand, the recovery in global sentiment after the fed’s action also cooled the rush to buy dollars and sent money back into precious metals.
Analysts point out that this means there is still room for gold to rise after a short-term correction. Given the long-term nature of the fed’s QE campaign, there is still more room for gold to move higher in the future as risk sentiment stabilizes further, with another short-term rally likely to test the previous high at $1,700 an ounce.
“Gold prices surged after the fed announced more than expected measures to support the economy,” said Edward Moya, senior market analyst at brokerage OANDA.
“The setback in the us senate appears to be only temporary and gold traders are very confident that the massive fiscal and monetary stimulus measures will help stabilise the market by the end of the week. If volatility stabilises somewhat, gold will return to its safe-haven status, “Moya said.
Stephen Innes, chief market strategist at financial services firm AxiCorp, said in a note that another factor supporting the gold market was the tight supply of spot gold due to the closure of three of the world’s largest gold refineries in Switzerland due to the outbreak.
Saxo bank analyst Ole Hansen said the focus was shifting to some of the supply disruptions caused by the outbreak, with South Africa clearly the main affected country. As a result, the focus has shifted somewhat from the risk of a sharp fall in demand to an equally challenging situation where our supply is struggling to reach metal buyers.
However, spot gold surged, but not as much as us gold futures, in a sign of fears that air travel restrictions and the closure of precious metals refineries would affect shipments to the us to meet contract delivery requirements.
The world’s three largest gold refineries said they had suspended production in Switzerland for at least a week because of the outbreak, also giving gold a boost.
“The fed’s stimulus is unprecedented and they have been very active in preventing this external shock from turning into a broader funding crisis,” said Vasileios Gkionakis, head of the currency strategy at Lombard Odier.
The fed on Monday announced plans to buy corporate bonds, guarantee direct loans to companies and extend credit to small and medium-sized businesses.
The fed’s latest moves are seen as effective in the short term in breaking the widening freeze in dollar funding markets, but the impact on the real economy is expected to last for a long time.
Analysts at two Canadian Banks said the fed’s unlimited purchases of us treasuries and mortgage-backed securities were a potential “game-changer” for gold and investors should take advantage of the downturn to buy the metal. The federal reserve has acted “more aggressively” than it did during the 2008 financial crisis to stem the bleeding in an economy hit hard by a new outbreak.
Carsten Fritsch, an analyst at commerzbank, said the need for “forced selling” of gold for cash due to weakness in equities and other markets did not mean the precious metal had lost its safe-haven status.
On Friday, gold-backed exchange-traded funds saw outflows of 21 tonnes, the highest since November 2016, Fritsch noted. The strong dollar also weighed on gold prices.
“The current preference for liquidity and the dollar obscures gold’s status as a safe haven,” Fritsch said. But we don’t agree with those who believe gold has lost this status, we believe that the current weakness is just a temporary anomaly, just like in the autumn of 2008, when gold also came under pressure for weeks, but then rose sharply, nearly three years to achieve the highest record so far.”
Golden aftermarket outlook
Goldman sachs noted on Tuesday that gold was close to an “inflection point” after the fed’s action and that it was time to follow the fed’s QE lead and buy gold. “We may be at an inflection point, as we were in November 2008, when ‘panic’ driven buying will begin to outweigh liquidity-driven selling pressure,” Goldman sachs analysts Jeffrey Currie and Mikhail Sprogis said in a March 23 report. As a result, the near-term and long-term outlook for gold looks “much more constructive”, say analysts at Goldman sachs. They also reiterated their expectation that gold will reach $1,800 in 12 months.
Analysts at b. Riley FBR said on Tuesday they expect gold to surge to $2,500 an ounce in the third quarter and stay there in the fourth quarter, given the unprecedented fiscal and monetary stimulus.
Analysts at b. Riley FBR wrote: “we do not have a convention to predict gold prices, but because we are confident that gold prices will continue to rise, we are interested in raising q3 ‘200 to $2,500, and we feel the need to align our 12-month price target with this view.”
“No matter how long the recession lasts and how much further stock markets may fall, the impact of extreme monetary and fiscal stimulus around the world will be felt,” said a report by b. Riley FBR. These effects are likely to be similar to 2009-11 and push gold to new highs.”
Todd Horwitz, the chief market strategist at BubbaTrading.com, wrote that after weeks of intense pressure, metal prices reversed overnight. The reversal began on Friday when gold for June delivery traded as low as $1,460 an ounce, platinum as low as $589 and silver as low as $12. At that time, all three precious metals hit higher lows and began to rebound.
Horwitz pointed out that while the market appeared to be rallying on Friday, there was still room to fall, and that what we were seeing was a normal dead cat rally in a downtrend. Monday’s rally was slightly higher, however, with the latest change, our signal turned bullish. It looks like metal is ready for the next stage.
Horwitz concludes that the next rally may already be underway. We won’t go against the signal, but we won’t be surprised if there is a pullback, which could create a better buying level. We follow exactly the rules of our model; We now have a small long position. To confirm that this is the next stage of the rally, there should be a pullback and consolidation. Otherwise, it could be a huge short squeeze. Time will tell.