Spot gold jumped sharply higher on Monday as risk aversion pushed prices above $1,740 an ounce, which is now just below that level. Rising concerns about economic losses from novel coronavirus and heightened tensions between China and the United States have given gold upward momentum from safe-haven buying, analysts said. Investors will continue to watch the latest developments in the U.S. and China this week, which are expected to guide gold prices. In addition, investors are bracing for key economic data this week, including the U.S. nonfarm report, which could be a key factor in the market’s direction this week.
Spot gold jumped about $7 before rising further, hitting a high of $1,740.51 an ounce, up more than $10 on the day. Spot gold is near $1,739 an ounce.
U.S. President Donald trump said at a news conference on Friday that Hong Kong no longer has enough autonomy to enjoy the special treatment granted by the United States, and that his administration will begin the process of removing the policy exemptions that give Hong Kong special treatment.
Trump made the remarks after the third session of the 13th National People’s Congress adopted the decision of the National People’s Congress (NPC) on the establishment and improvement of the legal system and enforcement mechanism for the maintenance of national security in the Hong Kong special administrative region by a large vote on the afternoon of May 28.
U.S. secretary of state mike pompeo told congress last Wednesday that Hong Kong should no longer enjoy the special treatment under U.S. law that has helped maintain the city’s status as a financial center.
Mr. Trump also condemned the world health organization and said the United States would end its relationship with the organization. Mr Trump said the who had “failed to deliver much-needed reforms” and that the us “will today terminate its relationship with the who and redirect these funds to other urgently needed global public health needs around the world”.
Trump also signed a proclamation that will ban Chinese graduate students from Chinese institutions with military ties from entering the United States.
The move could affect 3,000 to 5,000 Chinese students, according to sources including a current U.S. official and another person familiar with the administration’s internal discussions.
Tensions between China and the U.S. could fuel gold’s rally
Analysts say tensions between China and the us are a hotbed of geopolitics and could push gold prices higher this week.
Edward Moya, senior market analyst at broker OANDA, said: “the market is only focusing on the two largest economies at the moment and this could be a protracted battle. “You’re going to continue to see safe-haven demand for gold because tensions between the U.S. and China are going to be very high.”
As for gold’s performance this week, analysts and traders are bullish on the outlook for gold this week, according to the weekly financial market survey FX168 released on Saturday. Among traders and analysts surveyed in the weekly financial market survey, 60 per cent were long in gold and 20 per cent were both short and consolidation.
Wall Street expects gold prices to continue rising this week, according to Kitco’s weekly gold survey released Friday. Traders and analysts involved in the Wall Street survey cited trade tensions between the U.S. and China, recent dollar weakness and technical charts.
Thirteen of the 15 Wall Street voters, or 87 percent, said they were optimistic about the week ahead. One person held down expectations and one held down expectations, each accounting for 7 percent.
Phil Flynn, senior market analyst at the Price Futures Group, expects gold to rise. “Rising tensions between the U.S. and China and continued economic stimulus around the world should give gold upward momentum,” Flynn said.
Sean Lusk, co-head of commercial hedging at Walsh Trading, also sees gold prices rising as tensions rise between the United States and China. First, he said, it could end up being a ‘speed bump’ for U.S. stocks, which have been accelerating recently. Gold was also helped by the dollar breaking through chart support, he added.
“If things continue to get worse, that will only help gold in the long run,” Lusk said.
Jim Wyckoff, senior technical analyst at Kitco in New York, expects gold prices to rise as the chart outlook remains bullish and “China concerns lead to increased risk aversion.”
“Geopolitical uncertainty is starting to affect the situation in China and the Middle East,” said Charlie Nedoss, senior market strategist at LaSalle Futures Group. The dollar is in negative territory and that will support gold prices this week.”
The rift between China and the United States, exacerbated by growing concerns about economic losses caused by novel coronavirus, and the resulting low global interest rate environment helped the safe-haven metal gain more than 3 percent in May.
Suki Cooper, analyst at standard chartered bank, said: “the equity rally may limit gold’s gains, but gold has risen in an environment of risk appetite and risk aversion. There is good downside support around $1,700 and resistance around $1,765.”
Bill Diviney and Arjen van Dijkhuizen, senior economists at ABN Amro, said another escalation in the U.S. -china tariff battle could take trade tensions between the world’s two largest economies to a new level.
Nonfarm reports hit this week
This week, financial markets will see purchasing managers’ indices for manufacturing and services in a number of countries for may, as well as U.S. non-farm payrolls, trade balance and other big data. Friday’s U.S. nonfarm payrolls report is the most important.
The market expects the U.S. economy to shed 8 million jobs in May and the unemployment rate to hit 20 percent.
Wells Fargo said Friday it will release its U.S. nonfarm payrolls report for may, which is expected to show an 8 million drop in payrolls. The key question is how many of the temporary layoffs will become permanent. Unemployment is also expected to climb to 20%.
“One issue we will be watching closely is the cause of unemployment,” Wells Fargo wrote in a report. The current recession has been marked by a sharp rise in the number of unemployed people who describe themselves as’ temporarily unemployed ‘. Temporary lay-offs rarely have much to do with the business cycle, and nearly four-fifths of workers now believe their job losses are temporary. “How much of the temporary unemployment becomes permanent remains, in our view, a key question that needs to be answered.”
Other key U.S. data this week include the ISM manufacturing purchasing managers’ index on Monday, the ISM non-manufacturing PMI and factory orders on Wednesday, as well as initial and continuing claims for jobless benefits on Thursday.
In addition to economic data, investors are bracing for interest rate decisions from the European central bank, the reserve bank of Australia and the bank of Canada this week.
In addition, investors need to be concerned about whether infection rates will increase as economies continue to reopen following the novel coronavirus blockade.
In a speech Friday, fed chairman colin Powell said a surge in coronavirus infections in the United States could derail the economy’s recovery from the deep recession triggered by the pandemic, but he reiterated the central bank’s commitment to continue taking action to combat the crisis. It was Mr. Powell’s last public remarks before the fed’s June 9-10 policy meeting.
Standard chartered bank believes that if the fed does adopt a negative interest rate policy, then it needs to adopt a very large negative interest rate. Once the us federal reserve’s benchmark interest rate falls below zero, it needs to fall between minus 50 basis points and minus 100 basis points. In that case, gold would hit an all-time high.