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James Hyerczyk

Gold futures hit a new contract high on Wednesday as buyers continued to bet on rising coronavirus cases putting a dent in a rapid economic recovery. The price action suggests investors believe fresh stimulus packages will be coming from governments and central banks.

Global central banks have bumped up stimulus measures and kept interest rates low to ease the economic blow from the pandemic, driving a more than 16% rise in gold this year, as it is widely seen as a hedge against inflation and currency debasement.

At 11:54 GMT, August Comex gold is trading $1791.70, up $9.70 or +0.54%.

Second Wave Concerns

“Everybody is worried about a second wave of the coronavirus not only in the U.S., but in Latin America, Brazil and Russia, so that’s supporting the rally,” said Jigar Trivedi, commodities analyst at Mumbai broker Anand Rathi Shares.

The United States had a 25% increase in new cases of COVID-19 in the week-ended June 21 compared with the previous seven days, while the death toll in Latin America has surpassed 100,000, according to Reuters.

The European Union is prepared to bar travelers from the United States, putting the country in the same category as Brazil and Russia, the New York Times said.


Rising Investor Sentiment

Indicative of investor sentiment, holdings in SPDR Gold Trust, rose 0.28% to 1,169.25 tonnes on Tuesday, its highest level since April 2013.

Higher Treasury Yields Could Be Capping Gains

U.S. government debt yields were higher on Wednesday as investors tracked the prospects of an economic rebound. Yields were also higher on Tuesday as investors assessed the chances of an economic recovery amid a higher reading in manufacturing activity in the United States. Nonetheless, investors are also monitoring coronavirus infection rates.

Daily Forecast

Although prices are rising, the price action can best be described as “quiet”. This is actually a good thing because gold speculators sometimes rally a market too fast, and that often blows out the bullish flame.

However, as the market continues to climb, it will catch the attention of trend traders and speculators. So start looking for that surge or spike in prices.

We’re convinced the market will continue to be underpinned around the $1700 level. At that price, a global recession is probably fully-priced in. In order to continue to bump prices higher, the economic numbers are going to have to start coming in weaker.

It’s one thing to have a rise in COVID-19 cases, but that in itself is not supportive for gold. There has to be another wave of economic damage to fuel the next $100 to $200 surge in prices.

For a look at all of today’s economic events, check out our economic calendar.

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