GOLD futures for most of this week have been consolidating around the psychological US$1,700 level. The precious metal came under pressure as European and US states get ready to reopen their economies from lockdowns.
California, the first US state to shut down its economy to stop the spread of Covid-19, said it will start loosening its lockdown on Friday. In Europe, Italy began to reopen its economy after two months, while Spain also took action to reopen its economy.
Meanwhile, comments from central bankers were bullish for gold. European Central Bank (ECB) President Christine Lagarde said on Thursday that "the ECB will do everything necessary within its mandate to help the euro zone through the coronavirus crisis"; ECB vice-president Luis de Guindos told lawmakers that the bank does not intend to curtail its bond buying just because the German Constitutional Court does not like it.
The Bank of England said it could expand quantitative easing (QE) in June, while the central bank of Brazil cut its key rate by 75 basis points to a new record low of 3 per cent on Wednesday. In the US, the San Francisco Fed president talked up the possibility of further action from the Federal Reserve.
Further, trade tensions between the US and China rose after President Donald Trump promised a "conclusive" report on the Chinese origins of the coronavirus outbreak and said that tariffs on Chinese goods would be the "ultimate punishment" for China for starting the outbreak.
Technical analysis for Comex June Gold Futures (GCM20)
Daily technical indicators are still positive, that is, the 14-day RSI of the contract failed to fall below the 50-level on daily charts, which suggests that gold is supported on a retracement. The bullish trend is intact and is supported fundamentally. Immediate resistance for the June Comex 100 oz contract is at US$1,788, followed by US$1,800. Support is at US$1,662 followed by US$1,592.
Weekly market assessment
As nations start to focus more on economic concerns, there are fears that opening too rapidly may undo the good that measures such as safe-distancing have brought. A resurgence of the pandemic may do considerably more damage, pushing central banks and governments to add more monetary and fiscal stimulus measures. These factors would continue to support gold prices in the near term.
Gold remains a safe haven as currencies are being devalued by massive stimulus programmes. This has also increased physical demand for gold, triggering huge investment demand for gold, especially in Exchange Traded Funds.
- The writer is senior manager for commodities at Phillip Futures.
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