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James Hyerczyk

Gold futures are nudging higher on Tuesday after posting a dramatic technical closing price reversal top the previous session. The chart pattern, although potentially bearish, does not indicate a change in trend. However, if confirmed, it could trigger the start of a 2 to 3 day correction. In this case, it could just mean the selling is greater than the buying at current price levels so close to the multi-year high at $1788.80.

At 12:02 GMT, June Comex gold futures are trading $1735.90, up $1.50 or +0.09%.

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Gold surrendered its gains on Monday as risk appetite improved on promising early-stage data for a potential COVID-19 vaccine. Early in the session, the market surged with cash gold hitting its highest level since October 2012 before retreating to close lower, as stocks and oil surged after drugmaker Moderna said its COVID-19 experimental vaccine showed promising results in an early-stage trial.

Despite the sell-off, there are still enough bullish factors out there to support the market and to attract buyers on any meaningful dips.

Gold tends to benefit from widespread stimulus from central banks because it is widely viewed as a hedge against inflation and currency debasement.

On Sunday night, Fed Chairman Jerome Powell provided some ammunition for gold bulls by saying the central bank is nowhere near out of the ammunition it has to fight the current economic slump.

According to CNBC, the Fed has been given the ability to put some $2.6 trillion to work of which it has deployed about $100 billion. That potential figure is equal to 12% of the U.S. economy and doesn’t include the open-ended asset purchases the Fed can conduct nor the power it has to keep borrowing rates around the lowest they’ve ever been in the nation’s history.

Also supporting gold over the long-run were comments from the International Monetary Fund. On Tuesday, the head of the IMF said the global economy would take much longer to recover fully from the shock caused by the pandemic than initially expected. This raises the thought that there will be additional time for the Fed or the government to increase its stimulus packages.

Daily Forecast

With the bullish fundamentals still intact, I view Monday’s price action as the possible start of a technical correction. There is not enough evidence at this time to say we’ve seen a major top, or we’re getting ready for a change in trend to the downside.

Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin will testify before the Senate Banking Committee at 14:00 GMT on Tuesday. His comments could move the markets especially if he wavers from his commentary on Sunday night. However, he seldom does so this could turn into a non-event.

In a written testimony released late on Monday, Powell describes the coronavirus pandemic as having caused “a level of pain that is hard to capture in words” and calls on Congress to do more to match the Fed’s historic stimulus measures. He adds that the central bank is committed to using its “full range of tools” to support the economy.

On the data front, U.S. housing starts and building permits numbers for April are due at 12:30 GMT on Tuesday.

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