Monday, July 13, 2020

Investors Strike Gold Amid Safe-Haven Buying

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News shaping
the markets today

     

What’s happening: Although gold prices closed lower on Friday, the yellow metal recorded gains for the fifth consecutive week.

What happened: The continued rise in covid-19 cases in several US states and other parts of the world lifted the demand of assets to hedge against risk in an uncertain environment.

Gold seems to have become the go-to assets for hedging portfolios, as the US dollar’s safe-haven allure diminishes. Despite moving lower on Friday, the yellow metal held above the $1,800 level and posted gains for the week.

Why it matters: Trading in the US dollar and gold have a long correlation. When the greenback moves lower, gold tends to rise. This is because both assets compete as safe-haven options in investor portfolios. Moreover, as the greenback declines, demand for the yellow metal rises, as it becomes cheaper in other currencies, since the US dollar is the benchmark pricing mechanism for gold.

The US dollar slipped on Friday and posted its biggest weekly percentage decline against a basket of major currencies in about a month. Gold retains its appeal among investors on concerns of aggressive stimulus measures by central banks resulting in higher inflation.

While concerns of rising covid-19 cases lowered risk appetite, the US dollar slid after producer prices unexpectedly declined in June, even after a rebound in May, with soft demand amid the pandemic. Investors also worried about reports of Washington preparing a federal contract ban on goods and services from companies using products from five Chinese firms, including Huawei, Hikvision and Dahua.

Gold remained above the $1,800 an ounce level due to pressure on the US dollar. Gold futures for August delivery declined $1.90 to end at $1,801.90 an ounce on Friday but posted gains for the fifth successive week. Gold gained around 0.7% last week and has risen by over 18% year to date.

Meanwhile, September silver gained 0.5% to settle at $19.053 an ounce in the previous session, posting a 4% rise for the week. September copper climbed 2.1% to $2.8975 a pound on Friday, while October platinum slipped 0.1% at $845.90 an ounce.

What to watch: With no major economic reports scheduled for release today, all eyes will be on coronavirus numbers. Gold is likely to retain investor interest as cases continue to surge in various parts of the world. Gold futures were trading higher by 0.5% at $1,811 an ounce in the European session.

The Markets Today

     

US stocks will be in focus today, ahead of the start of the second-quarter earnings season.

Context: US equities closed higher on Friday as news of a potential covid-19 vaccine lifted hopes of an economic rebound. Amid restrictions, technology stocks continuing their rally.

Details: Gilead Sciences reported encouraging data from its coronavirus vaccine candidate, Remdesivir, which showed that the antiviral drug had improved the clinical recovery rate, while also reducing the risk of mortality by 62% in patients suffering from the infection.

Shares of Gilead Sciences rose 2% on the news on Friday. Tesla’s stock climbed more than 10%, even as analysts recommended investors to tread lightly after the rally so far this year.

Shares of Netflix jumped around 8% as the company gears up to report its second-quarter results on July 16. Amazon’s stock also surged to a new all-time high and closed its tenth week of gains.

The Dow Jones index added 369.21 points to close at 26,075.30 on Friday, with JPMorgan and Goldman Sachs leading the gains. The S&P 500 rose 1% to 3,185.04.

The Nasdaq 100 surged to another record close on Friday, rising 0.6% to 10,617.44, driven by gains from Amazon and Netflix.

The Dow Jones index gained around 1% last week, while the tech-laden Nasdaq 100 index posted a weekly surge of 4%.

What to watch: Investors look forward to the start of the quarterly earnings season, with some major financial companies scheduled to report results this week. PepsiCo will be reporting its earnings today. The economic calendar is light today, with US scheduled to report consumer inflation expectations and government budget data.

Markets will continue to focus on the daily coronavirus numbers, with the total case-count in the US surging past 3.3 million with more than 135,000 deaths.

Other Markets: European indices were trading higher at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index up by 1.1%, 0.9% and 1.2%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

India's retail price inflation and China’s foreign direct investment.