In early Asian trading on Wednesday, gold held steady, rising 0.3 per cent after briefly approaching the $1,750 mark.
Gold prices rebounded higher in the previous session, largely because there was still considerable uncertainty about how the economy would emerge from the crisis, but optimism over novel coronavirus vaccines helped limit gains.
Massive global stimulus measures aimed at limiting economic losses from novel coronavirus have supported gold, which is widely seen as a hedge against inflation and currency depreciation. At the same time, uncertainty about the relationship between China and the United States is driving demand for safe-haven assets.
The international spot gold sub-market in the last trading session opened at $1,744.00 / oz in the morning, rose as high as $1,747.40 / oz, and fell as low as $1,725.39 / oz to close at $1,744.00 / oz, up $12.38, or 0.71%.
Meanwhile, COMEX June gold futures closed up nearly 0.7 percent at $1745.60 an ounce.
Analysts at ICICI Bank said gold was supported by fears of a global recession and the impact of central Bank stimulus measures, while rising risk appetite limited gold’s gains after a positive report on novel coronavirus vaccine.
Peter Schiff, chief executive of euro zone Pacific capital and a prominent fund manager, said the fed would create an inflationary environment that, like a tax, would harm society at all levels. Such a “tax” would also devalue fiat currencies, and investors should hold physical gold and silver. Thus, to mitigate losses, investors sold dollars before the dollar collapsed to accumulate real currencies, gold and silver, or to buy high-quality income-generating assets in other countries. And as the dollar depreciates at an even faster rate, gold will eventually replace it as the DE facto global reserve currency.
“Gold and gold stocks performed strongly, rebounding from all of their losses in March to near long-term highs,” Joe Foster, portfolio manager and strategist at VanEck, said in a note. As fears of a pandemic subside, investors are trying to assess the risks and opportunities in a world of uncertainty that only those with deep memories of the great depression and world war ii can experience.
Foster said the continued large inflows of gold and silver exchange-traded products, as well as strong demand for retail COINS, suggest that both institutions and individuals are using gold as a store of value and a hedge against uncertainty.
Gold is the king of heaven
At 22:00 on Tuesday evening, federal reserve chairman colin Powell and U.S. Treasury secretary Steven mnuchin appeared by video at a senate finance committee hearing to brief congress on the economic response to the covid-19 outbreak.
During the hearing, both the fed and congress signaled more easing.
According to bloomberg, the federal reserve is planning to launch four new lending facilities, including direct loans from Banks and loans to small and medium-sized businesses.
At the Treasury Department, the immediate focus will be on reaching agreement with the house and senate on a new stimulus bill. Mnuchin also said the Treasury Department would keep $259 billion in reserves from CARES ACT to create or expand credit programs if needed.
Fed chairman colin Powell says the central bank is ready to provide more support to the domestic economy.
“We need to be prepared to take further action,” Powell said in testimony before the senate banking committee. “I think we are prepared to take further action if necessary.”
“Powell indicated that all emergency lending programs will end by the end of the month and that the fed and congress may need to pump more money into the economy,” Edward Moya, senior market analyst at Oanda, said in a market update. The fed is far from finished pumping stimulus money into the economy, and gold prices like it.
Meanwhile, U.S. Treasury secretary Steven mnuchin expects to see continued high unemployment and other negative economic indicators in the second quarter. But the economy is expected to improve in the third and fourth quarters as business activity resumes.
Mr. Mnuchin said the government was “fully prepared to take the losses” and provide relief to businesses hit by the covid-19 outbreak.
In addition to the stimulus offered by Powell and nuchin, U.S. President Donald trump announced a new stimulus package on Tuesday.
On Tuesday, trump announced a $19 billion coronavirus food aid program to support farmers and ranchers in the United States and “maintain the health of the food supply” during the coronavirus crisis.
Speaking at the White House, Mr Trump said: “farmers and ranchers are amazing people. I am proud to stand by them in this time of need.”
Mr Trump said the new plan would provide $16bn “directly” to farmers and ranchers.
“As part of this plan, $16 billion will be paid directly to farmers and ranchers,” trump said. He noted that the program is authorized by the coronavirus assistance, relief and economic security Act, or CARES Act, a coronavirus stimulus package worth more than $2 trillion that was passed in March.
As part of the coronavirus farm assistance program announced last month, the U.S. department of agriculture purchased and distributed up to $3 billion in produce to those in need.
Analysts said that with the introduction of the multi-directional stimulus measures in the United States, gold is bound to be seen as a hedge against inflation and devaluation of the “favored child” and the gold market is likely to usher in a bigger burst.
In addition, gold was on Monday in the news about the new crown vaccine are being subjected to the market, the early reports have pointed out that pharmaceutical companies Moderna in early progress in vaccine, but the latest report on Tuesday, according to experts question the clinical data of biotechnology company Moderna, says it does not provide COVID – 19 vaccine is critical to the assessment of the data, it also supports the rally.
As a result, gold has rebounded strongly on the back of a combination of increased U.S. stimulus, uncertainty over trade with China, and news of covid-19 vaccine progress. But the current market mood is mixed, gold bulls need to be careful, any new news could trigger a sudden change in sentiment.
Golden aftermarket outlook
A research note from bank of America asset management said gold remained bullish on Monday despite its retreat from a seven-year high, similar to last week’s 2.5 percent rise in the precious metal, and would remain bullish for the rest of the week. Central bank money printing could lead to future inflation, which would support gold prices.
Analysts at td securities (TDS) pointed out that with central Banks around the world continuing to release liquidity and it still taking some time for economic recovery after the epidemic, gold prices remain fairly supportive in the medium term. Although there will be short-term ups and downs, the overall upward trend will not change.
‘the fundamentals of gold have never been better, and unless we see more positive news on vaccines, gold will start to see upward momentum toward new highs,’ said Jeffrey Sica, founder of Circle Squared Alternative Investments. Any news that businesses are back to work and struggling will eventually push gold higher.
Stephen Innes, chief market strategist at financial services firm AxiCorp in New York, said the fed’s worrisome balance sheet expansion was certainly one of the main drivers of gold’s rally, with rising trade tensions between China and the United States adding to gold’s popularity. With global interest rates close to 0 per cent, the opportunity cost of holding gold remains attractive.
Stephen Innes, global chief market strategist at AxiCorp, noted that “vaccines may not be an absolute game changer for long-term gold positions, as central bank balance sheets will not magically evaporate and uncertainty about the us-china trade situation will continue in the short term.”
Todd Horwitz, chief market strategist at BubbaTrading.com, wrote, “many will take Monday’s move in the precious metals market as a bearish signal and may start selling. Gold had one of the ugliest falls of the day; Some will call this pattern a critical reversal. However, in our view, gold closed at support and should resume its rally in the coming days.”
Bryan Slusarchuk, chief executive officer of Fosterville South Exploration, said that as a result of monetary and fiscal stimulus, trillions of dollars have been pumped into the market through quantitative easing, devaluing and devaluing paper currencies. “Gold is the only currency that central banks cannot print at will, so it is the only currency that holds its value in times of crisis.” With more paper money in circulation, these currencies have less intrinsic value, reinforcing gold’s appeal.