Gold owners are likely to continue to liquidate positions over the near-term in order to rebuild capital levels.
Gold futures are trading flat-to-lower shortly after the regular session opening on Thursday. The price action suggests investor indecision and impending volatility. The market has been highly correlated with stocks this week, and this relationship appears to be continuing today. Rising Treasury yields and a stronger U.S. Dollar have also weighed on demand for dollar-denominated gold.
At 13:40 GMT, April Comex gold is trading $1474.10, down $3.80 or -0.26%.
Essentially, the volatile price action in gold this week has been fueled by the stockpiling of cash. Investors sought to hoard cash in unstable market conditions despite additional measures from the European Central Bank (ECB) to deal with the economic fallout from the coronavirus outbreak.
So far investors haven’t responded much to loads of stimulus from governments and central banks. These moves have been implemented to boost the economy when the virus is contained, however, they are having very little short-term effect.
Cleary, investors want to see containment of the virus which means evidence that it has stopped spreading in the United States and positive movement toward a vaccine. At this time, no amount of credit and monetary stimulus can contain the virus, but it will make a difference later, once the economy starts to recover.
The U.S. Dollar surged to a multi-year high earlier in the session, while bonds and stocks struggled to find their footing. Meanwhile, the announcement of the ECB’s latest stimulus measures provided only brief solace at a time when the global economy grapples to contain the pandemic.
In Japan, traders are waiting for new economic stimulus packages. In Germany, the Chancellor urged citizens to adhere to rules aimed at reducing social contract
In the U.S., the Senate overwhelmingly passed legislation providing billions of dollars to limit the damage from the outbreak through free testing, paid sick leave and expanded safety-net spending.
Holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 0.66% to 923.69 tonnes on Wednesday.
Gold owners are likely to continue to liquidate positions over the near-term in order to rebuild capital levels.
Gold investors are also watching the charts with $1468.30 to $1412.50 defined as a key support zone. Trader reaction to this zone will likely set the tone today. If there is a rally then $1577.60 to $1607.60 remains the primary upside target.
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.