Gold is being underpinned by the pessimistic view that the global recession is going to turn into longer lasting depression
Gold futures are trading higher on Friday as concerns of the rising number of new coronavirus infections led to speculation that the road to recovery in the global economy would be long and difficult and there may be the need for additional fiscal and monetary stimulus.
At 11:33 GMT, August Comex gold is trading $1740.10, up $9.20 or +0.53%.
“These cases of second waves in certain locations is basically what is fueling the pessimistic view that this recession is going to turn into longer lasting depression,” Julius Baier analyst Carsten Menke said.
“From my point of view, it’s (gold) going to remain around the $1,700 level for the next few months unless we have clarity of where the economy is going.”
More than 8.38 million people have been infected by the coronavirus globally, with some 400 workers being tested positive at an abattoir in northern Germany, and China reporting 32 new virus cases on Friday.
A surge in infections has renewed fears of a delay in economic recovery as countries reopen after coronavirus-induced lockdowns.
Earlier in the week, New Zealand reported that its gross domestic product suffered its biggest fall since 1991 as the coronavirus pandemic began to bite in the first quarter.
Gross domestic product fell 1.6 percent from the fourth quarter, Statistics New Zealand said on Thursday in Wellington. Economists expected GDP would shrink 1 percent. From a year earlier, the economy fell 0.2 percent – the first annual contraction since 2009.
Gold seems to be moving lock-step with the equity indexes this week, which means traders aren’t worried about having to cover stock market losses or margin calls. Steady to lower Treasury yields are also providing some support. The stronger U.S. Dollar may actually be slowing down the rally.
Fundamentally, the prospect of additional fiscal and monetary stimulus remain supportive and the key rally drivers.
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James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.