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James Hyerczyk

Gold is trading slightly lower for a third straight session on Tuesday, as optimism about the easing of coronavirus-related restrictions drove investors toward riskier assets, while global recession fears capped the bullion’s losses. Gold investors are also shrugging off a plunge in the U.S. Dollar Index, which under normal market conditions would drive up foreign demand for dollar-denominated gold.

At 11:16 GMT, June Comex gold is trading $1722.60, down $1.20 or -0.07%.

Influencing gold prices lately has been the assumption by many investors that the easing of lockdowns will bring a V-shaped recovery, and with that there would be less need for gold as a diversifier and hedge.

Short-Term Outlook

Gold traders are selling to lock in profits as they give governments the benefit of the doubt over the easing of restrictions. Italy and New Zealand think it’s time to ease, while Britain said it’s too dangerous to relax a stringent lockdown for fear of a deadly second outbreak.

We’re likely to see weak physical demand over the short-run, which could lead to consolidation or even lower prices. This could last 14 to 21 days as traders will continue to monitor the flattening of the number of coronavirus cases. If the data signals ‘all clear” then prices could weaken further. If the data shows another outbreak is beginning then look for the rally to resume.

Moving forward, trading decisions could become more difficult because traders will have to deal with a combination of coronavirus data and economic reports.


Long-Term Outlook

The longer-term outlook is clearer. There has been damage to the global economy, volatility in financial markets remains elevated and gold is still being considered a good hedge against volatility. Additionally, fiscal and monetary stimulus will continue to be in focus.

Since gold is an investment and not a safe-haven asset, investors have to consider that the catalyst driving the market may change from momentum to value. During the early stages of the crisis, traders were chasing gold higher. Now that the lockdowns are ending, investors may be more concerned about value.

Daily Forecast

Gold could remain under pressure on Tuesday. The inability to rally with the weakness in the dollar is one reason why. Additionally, rising stocks are pulling money out of gold and back into the equity markets. Furthermore, renewed selling pressure in crude oil could encourage professionals to sell gold to cover losses or meet margin calls.

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