European stocks fell as much as 1% in early trading on Tuesday, as risk appetite took a turn for the worse. The dollar continued its slide, falling as low as 92.50 to regain support. The euro rose above 1.19 and the pound as high as 1.3170. Usd/JPY traded as low as 105.39. As risk sentiment cooled and the dollar sold off, money poured into gold and silver. Spot gold surged more than $20, breaking through the 2000 barrier to as high as $2,99.95 an ounce. Spot silver surged more than 2 percent to as high as $28.339 an ounce. On the news side, the situation in China and the US, the US election and the severe situation of coVID-19 continue to create great uncertainty for the market. In addition, the dollar continued to encounter selling pressure, became the biggest factor in the gold counterattack.
The dollar: As FX168 pointed out yesterday, Zerohedge, a financial blog, pointed out that as of last week, according to published official data, the number of futures contracts sold by speculators on a net basis short the dollar was the highest since the late 1990s. According to bank of America’s latest foreign exchange and interest rate survey, “shorting the dollar” has become the most popular trade of 2020.
Leveraged funds’ net futures and forward positions in eight currencies excluding the dollar fell to minus 7,881 last week, Bloomberg reported on Monday, citing data from the U.S. Commodity Futures Trading Commission. That means there are now more investors betting on a weaker dollar than a stronger one. Bloomberg said the short-selling frenzy was driven by bets to be long on the euro. The euro has outperformed the dollar by more than 6% since the start of the year.
The dollar has been weakening since the peak of the COVID-19 crisis. This pessimism is partly due to the Federal Reserve’s massive coronavirus stimulus program. Expansionary monetary and fiscal policies tend to depress bond yields and interest rates. Lower interest rates make dollar savings less attractive.
While investors initially flocked to safe-haven assets such as the DOLLAR at the start of the coronavirus pandemic, that has subsided in recent months. The dollar index has fallen 9 per cent since March.
The weak DOLLAR is another key reason investors have piled into gold. A weaker dollar means they can buy a lot of gold more cheaply.
Looking ahead, traders and policymakers do not expect policy rates to change until the end of 2021 at the earliest, and Bloomberg economists expect inflation to rise early next year.
Win Thin, global head of market strategy at Brown Brothers Harriman, warned last week that “things are not good for the dollar.” Thin said the U.S. handling of the coronavirus pandemic has weighed on investor confidence in the dollar.
“It’s one of those rare occasions when Europe has outperformed the US,” the strategist told CNBC’s Trading Nation.
Gold: As the dollar weakened, gold continued to rally, regaining the $2,000 mark today to its highest level since August 11. It’s worth noting that gold plunged nearly $100 on the day, and a rebound above 2030 would mean the price would have fully recovered all its losses for the day.
Some analysts pointed out that after a few consecutive days of rebound, gold bulls recovered a number of key positions, including the previous high of 1921 and the rebound to suppress the level of 1966. In the short term, as long as the bulls can stay above 1974, there’s a good chance they’ll be back above 2000. Further up the main key suppression will be on the 2029/31 line.
If this resistance continues to be firmly held by the bulls, it is only a matter of time before a new all-time high is broken. Bears need to push prices below 1974/66 to signal that the rally is over and into a shakeout or a first wave of correction. From a time point of view, August to September is usually the low range for gold, so the possibility of a double dip cannot be completely ruled out at this time.
Technically, gold is currently at $2,000 as a secondary resistance, $2040 as a primary resistance and $2080 as a primary resistance. Analysts at Kitco News believe gold could break new all-time highs in the next two months once it challenges again and crosses $2,000.
Bob Haberkorn, senior market strategist at RJO Futures in New York, said the market is expecting the Fed to provide very strong support for gold, with prices above $2,000 an ounce before the minutes of the Fed meeting this week and above $2,250 by the end of the year.
In addition to the weak dollar, the global outbreak situation grim, especially in Europe, after Germany’s new confirmed cases are at new highs since April, and Russia’s new vaccine development seems suspicious, it is reported that Russia will be announced in the coming days about Russia will be coronavirus vaccine preclinical and clinical data, in response to the question.
In the U.S. presidential election, the rhetoric released by the Democratic National Convention failed to satisfy Wall Street investors, as uncertainty about the future of fiscal and economic regulation balloted. As for the situation between China and the US, yesterday’s escalation of the US ban on Huawei also hit the risk sentiment. In addition, the news of Buffett’s involvement in gold has been somewhat positive.