Gold rebounded on Monday after hitting a low of $1,575.20 an ounce and an intraday high of $1,610.70 on Wall Street, as bulls tried to get gold back above the 1,600 mark and lay the groundwork for further gains. Fed chairman colin Powell delivered a speech on Friday that delivered a “tone” in line with US President Donald trump. It said public health emergencies posed “evolving risks” to us economic growth and suggested the fed was prepared to cut interest rates if necessary to support economic expansion.
Even so, US President Donald Trump today again attacked Mr. Powell and the fed for being as slow as ever in their response. Germany and others are pumping money into their economies. Other Central Banks have been more aggressive. Trump spending, normally the us should have the lowest interest rates. That is not the case, which puts America at a competitive disadvantage. The us should take the lead, not follow in the footsteps of others.
The market is increasingly betting on a Fed rate cut in March, with the latest CME fed watch tool showing the probability of a 50 basis point cut at the fed’s March 18 meeting has surged to 100 percent. A fed rate cut would depress the dollar, giving a boost to dollar-denominated assets such as gold.
Daniel Ghali, the commodity strategist at TD Securities, said: “much of the recent rally has been driven by safe-haven flows that could move very quickly and be very difficult to absorb if sentiment changes. Everyone has bought gold and is looking to sell it, which has prevented it from rising further even as the sell-off in equities has continued.”
On the data front, U.S. construction spending posted its biggest gain in nearly two years in January, but the upbeat news was overshadowed by concerns that a new outbreak of pneumonia could slow global economic growth. Spending on private construction projects jumped 1.5 percent in January, the highest level since February 2018. Low mortgage rates are supporting residential construction in the United States, and residential investment started rising steadily in the second half of 2019 after six straight quarters of contraction.
Separately, the OECD warned in its latest report that the global economy could contract in the current quarter, cutting its forecast for global growth in 2020 from 2.9 percent to 2.4 percent, according to media reports.
For individual countries, the OECD cut its 2020 growth forecast for the us to 1.9 percent from 2.0 percent, the eurozone to 0.8 percent from 1.1 percent, Japan to 0.2 percent from 0.6 percent, the UK to 0.8 percent from 1.0 percent and the G20 to 2.7 percent from 3.2 percent.
The OECD points out that the forecast is based on the new coronavirus reaching its pandemic peak this quarter. In a global downturn, there are recession risks in Japan and the eurozone. If the situation worsens, global action is urged.
On the other hand, the European Union’s center for disease control and prevention (ECDC) raised the risk level for new cases of coronary pneumonia from “moderate” to “high”, said the commission’s President, Stephane von der leyen. In addition, market news pointed out that the head of the Swedish health agency said that Sweden raised its risk assessment for a new outbreak of coronary pneumonia from “low” to “medium”.
On a technical note, Economies.com wrote that gold’s sharp decline stopped at a 50% Fibonacci retracement from a raise of $1,353.11 an ounce to $1,689.33. A clear bullish bias in gold at the start of the day and a return to the small bullish channel suggest a return to the main bullish trend, especially now that the positive signals from the stochastic indicators are expected to push gold higher in the coming sessions.
As a result, gold is expected to be bullish today, with the first target of $1,633.58 an ounce. A break above that level would open the way for gold to test its next target of $1,689.33 an ounce. It should be noted that if gold falls below $1,571.22 / oz, this will put additional negative pressure on gold and threaten the main bullish support line, thus opening the way for gold to turn negative in the short to medium term.
Economies.com expects gold to trade between support at $1580.00 an ounce and resistance at $1635.00 an ounce.
Outlook for the future market:
Nicky Shiels, the commodity strategist at Scotiabank, boosted her outlook for the precious metal by announcing at the e&d Canada annual meeting in Toronto that “gold is back in fashion” and kicking off a new uptrend.
The only problem with gold, she adds, is the path of the uptrend in 2020.
On the price front, Scotiabank raised its forecast for this year. Shiels said she expects gold to rise to $1,750, compared with an average price of $1,625 this year, up 1.5% from her previous forecast. In the longer term, gold could rise to $1,900, Shiels said.
“A lot of investors and traders have to meet margin requirements for other products, so they’re selling as much as they can,” said Michael Matousek, principal trader at U.S. Global Investors. That is why gold and gold mining stocks have been hit. People are trying to sell anything they can. This is a broad sell-off.”
“Gold was extremely down 4.5 percent on Friday as investors liquidated some of their long positions to join the more general sell-off in precious metals,” commented Stephen Innes, chief market strategist at brokerage AxiCorp. But Powell’s speech on Friday was positive for gold.”