International spot gold was at $1704.50 an ounce in Asian trading on Wednesday. After hitting a low of $1691.40 in the previous session, gold rose to as high as $1,711.60 in volatile trading and closed up for the third session in a row. Gold, meanwhile, fell in volatile trading from the open, hitting an intraday low of $1700.70 an ounce before bouncing back nearly $5 from its low.
The United States is considering extending tariffs on some Chinese goods for another year, according to sina financial news. The ustr said it was considering extending the exclusion of some products from Chinese tariffs for up to 12 months.
Gold retreated further on the news, accelerating to $1700.70 an ounce, as risk aversion related to the trade cooled.
International spot gold opened at $1,699.98 an ounce in the previous session, rising as high as $1,711.40 an ounce and dipping as low as $1,690.73 to close at $1,704.70, up $3.61, or 0.21 percent. COMEX June gold futures ended down 0.2 percent at $1,710.60 an ounce.
Safe-haven demand for gold has been weakened as more countries ease restrictions related to the outbreak and Swiss smelters start to increase production, further cooling risk aversion. Although the last session of gold closed slightly higher, but the bullish momentum is significantly less than before, gold rally a little bit less.
Meanwhile, the dollar rose for a third straight session against most major currencies, in line with U.S. stocks, buoyed by the potential reopening of markets in some U.S. states and countries around the world and stronger-than-expected U.S. services data.
Some analysts say the dollar has had a positive correlation with us equities since the coronavirus outbreak in March. Typically, when stocks fall and financial markets come under pressure, the dollar tends to rise.
The dollar remains a safe haven, rising in times of turmoil. But when it moves in tandem with risky assets, analysts are no longer surprised.
And while gold has held on to most of its gains this year, it is now down more than 4% from a seven-year high hit in mid-april, under pressure as risk appetite has returned.
As the global outbreak gradually eases, some U.S. states are taking steps to restore business. Europe’s quarantine measures are easing. Meanwhile, gold smelters in Switzerland are ramping up production, which will further ease supply concerns. Valcambi SA is scheduled to reach 85% of normal production this week, while aror-heraeus SA is aiming for 90%, and the PAMP is ramping up production.
In addition, Comex continued to build up its gold inventories as the June delivery date approached, with total stocks hitting a new record of nearly 20.6m ounces on Monday.
Goldman sachs and Morgan Stanley said there were signs the world economy was bottoming out, further undermining demand for safe haven gold.
George Gero, managing director of RBC Wealth Management in New York, said rising U.S. stocks and a stabilizing dollar were a drag on gold, and there were concerns that mounting debt might not be able to sustain support for the precious metal. When all these things come together, the trader says, “I’m going to step off the sidelines for a while and see what happens in the next week or two.”
Golden aftermarket outlook
Credit suisse group said the gold market is stuck in the $1,705 / oz zone, short term upside momentum is blocked and volatility is expanding. A pullback below $1,660 an ounce would suggest further weakness, with a target of $1,638. In the longer term, however, the bullish gold outlook is expected to eventually break above the all-time high of $1,921 an ounce.
Bank of America merrill lynch analysts Michael Widmer and Francisco Blanch’s team raised their 18-month gold price target to $3, 000 from $2, 000 at a stretch, by as much as 50%.
Bank of America merrill lynch thinks fiat money could come under pressure as economic output contracts sharply, fiscal spending rises sharply and central bank balance sheets double, and investors will target gold. With central Banks and governments doubling their balance sheets and fiscal deficits, there is every reason to raise the 18-month target to $3,000 an ounce.
Veteran commodities trader Andy Hecht pointed out that gold had been strong before, after a volatile session about a week ago, and is now trending negative. Next, investors should focus on $1,680 – $1,700 / oz support. If the closing price falls below these support levels, a sell signal is triggered.
Gregory Leo, chief investment officer and head of global wealth management at IDB Bank, said: “the outlook for gold is mixed and much depends on the path and shape of the economic recovery. The unprecedented monetary and fiscal stimulus by the U.S. government has led some to believe that the dollar will fall and inflation will increase.”
Jeff Wright, executive vice President of GoldMining Inc., said, “given the size of the fed’s balance sheet and the need to further re-open the economy more broadly, gold is unlikely to fall much further. “In the short term, gold could trade in the $1,650 – $1,750 range, but if the dollar falls back, it could go to $1,800.”
“The gradual opening up of economies is the biggest driver of sentiment right now,” said Craig Erlam, an analyst at OANDA. Gold appears to be in a consolidation mode and is very sensitive to the dollar. Investors may be a bit too optimistic at this juncture, underestimating how gradual this will be. The case for gold is still the massive monetary stimulus in the financial system.”