15 June 2020

Gold Shines Amid Concerns Over New Wave of Virus

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News shaping
the markets today

     

What’s happening: Gold prices recorded strong gains last week, backed by renewed concerns over the global economy.

What happened: Gold futures slipped slightly on the last trading day of the week, as some US stocks made a recovery. Despite this minor setback, gold trading made significant gains last week on news of a rise in covid-19 cases.

Fears of a new wave of coronavirus cases, triggered by the reopening of the US economy and the dismal economic outlook provided by Federal Reserve Chairman, led to higher demand for the precious metal due to its safe-haven status.

Why it matters: Almost a dozen US states saw a spike in covid-19 cases, which were previously speculated to be due to an increase in testing. Subsequent news of an increase in the number of hospitalisations confirmed fears of the spike being real.

China’s capital Beijing reported almost 50 covid-19 cases, after several weeks of there being no new cases recorded.

These developments fanned fears of a resurgence of the pandemic, hurting invertor risk appetite and providing support for the yellow metal.

Gold prices climbed 1.1% on Thursday following a 7% decline in the Dow Jones index after the Fed’s gloomy economic outlook.

Gold prices (XAU/USD) traded close to the session’s high of $1,753 on Friday, but pared all gains after the release of strong economic data showing an improvement in US consumer sentiment to 78.9 in June, from a reading of 72.3 in May.

August gold slipped 0.1% to settle at $1,737.30 an ounce on Comex, with the yellow metal delivering a weekly gain of 3.2%.

Among other metals, July silver fell 2.3% to $17.482 an ounce, with the metal closing the week slightly higher than last Friday’s closing price of $17.479. July copper gained 0.5% to $2.60 a pound, rising 1.7% for the week.

What to watch: Gold prices might give back some of last week’s gains due to profit taking among traders. The precious metal traded down 0.6% to $1726 during the European session. Gold is likely to find support from a continued rise in new coronavirus cases and concerns over the global economic outlook.

The Markets Today

     

US stocks will be in focus today, after the markets finished the week with strong losses.

Context: US stocks recovered slightly on Friday after recording massive losses in the previous trading session. Indices trading remained under pressure and closed the week lower, recording their biggest weekly decline since March 20.

Details: Fears of a resurgence of new coronavirus cases hurt market sentiment, with various US states, including Texas and Arizona, recording an increase in infections.

The IMF’s chief economist also warned of a slower growth in more economies than was earlier expected. Gita Gopinath said that the pandemic had inflicted “significant scarring” on the global economy and warned that the chances of recovery remained highly uncertain.

The Dow Jones index was highly volatile on Friday, touching a high of 25,965.55 and a low of 25,183 during the session. The index closed higher by 477.37 points at 25,605.54 on Friday, but posted a weekly loss of 5.5%.

The Nasdaq 100 gained 1% to close at 9,588.81 in the previous session, while the S&P 500 index rose 1.3% to 3.041.31. For the week, the tech-laden index lost 2.33% and the S&P 500 shed 4.8%.

Economic data gave some hope to investors on Friday, with the University of Michigan’s consumer sentiment index climbing to 78.9 in June, from a reading of 72.3 in May. Import prices increased 1% for May, their biggest rise since February 2019.

Airline stocks spiked on Friday, with shares of United Airlines Holdings climbing 19% and American Airlines Group jumping 16%.

What to watch: Traders await the New York Empire State manufacturing index, which increased to -48.5 in May and is expected to rise to a reading of -27.5 in June.

Investors will also assess the daily covid-19 numbers, with the total global infections exceeding 7,914,860 with 433,470 deaths. The US has so far reported around 2,094,060 coronavirus cases with 115,730 fatalities.

Other Markets: European indices were trading lower at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index down by 2.2%, 2.7% and 2.6%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

India’s balance of trade, Canada’s manufacturing sales, China’s foreign direct investment as well as South Africa's SACCI business confidence index.

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