Gold Comex August future prices have been consolidating in the price band of $1665-$1776 post hitting a 2020’s high of $1788.8 touched on April 14. Two-month long sideways consolidation in about 100 dollars range has given a good amount of trading opportunity to short-term/momentum traders but investors didn’t make any money despite continued crowded fund and safe-haven buying.
Prices have to move out of this range to set up a Fresh Trend. Bearish Trend will set, once prices close and sustain below $1665, for downside trajectory of $1580/$1550. Moreover, Bullish Trend will resume once prices manage to sustain above $1790-$1800 mark, with a possibility of reaching $1850-$1880 in the days to come.
Shifting focus to ongoing fundamentals reveals:
The dollar rallied to a 1-week high after White House economic advisor Larry Kudlow said that he didn’t expect a second wave of the coronavirus in the U.S. and, the economy would not shut down again. Silver prices fell back on weaker-than-expected global economic data that was negative for industrial metals demand.
Low global bond yields, which boost demand for gold as a store of value, also remain favorable for precious metals so far.
Recent global economic data was mostly supportive of gold but negative for industrial metals demand. Eurozone Apr industrial production fell -17.1% m/m, the biggest decline since data began in 1991 but slightly better than expectations of -18.5% m/m. Also, UK Apr GDP fell -20.4% m/m, weaker than expectations of -18.7% m/m and the steepest pace of contraction since the data began in 1997. Also, UK Apr manufacturing production fell -24.3% m/m, weaker than expectations of -15.6% m/m and the biggest decline since the data began in 1968. Finally, Japan Apr industrial production was revised downward to -9.8% m/m from -9.1% m/m, the biggest decline in 9 years.
Dovish commentary from Central Banks is certainly bullish for gold in the medium-term as it is supporting stimulus measures for revival of the global economy from the Corona Virus Pandemic.
ECB Governing Council member De Cos sees downward pressure on inflation in the medium term and that deflation risks have increased. The Japanese parliament on Friday passed a record 31.9 trillion yen ($298 billion) extra budget to help revive the economy.
Gold and silver ETF continued to attract safe-haven demand. Long gold positions in ETFs last Wednesday rose to a new record high of 3,131.29 MT (data since 2002). Also, long silver positions in ETFs rose to a new record high of 746.401 million ounces Thursday.
Simultaneously, we must keep in mind the fears of long-term deflation due to the massive economic damage from the pandemic, and weak industrial and physical demand that could act as speed breaker if the recent wave of a rally in the Stocks, Industrial commodities and Energies continues that started with re-opening of global economies.