Monday, August 3, 2020

Can Gold Surge Past $2,000 Today?

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News shaping
the markets today

     

What’s happening: Gold futures climbed on Friday to record the best monthly gains in more than four years.

What happened: Many market-moving events have grabbed headlines recently. As these events have provided contradictory indications, the global financial markets have not been able to set a trend.

While increased risk appetite sent the US stock indices higher on Friday to record overall gains for the month, this coincided with increased risk aversion, sending safe-haven assets higher.

Why it matters: The massive contraction in US GDP left investors very worried. With the country’s economy shrinking by 32.9% in the second quarter, a recovery seems even further out of reach at the moment.

Despite these concerns, the three major US stock indices – the Nasdaq 100, S&P 500 and Dow Jones index, closed higher on Friday, with a slate of tech giants handsomely beating earnings expectations.

Meanwhile, the US dollar – a competing safe-haven asset to gold – continued to decline, amid America’s economic woes. The US dollar index, which measures the greenback’s performance versus six major rivals, dipped to two-year lows last week and has lost over 4% in July. The US dollar losing favor as a risk hedging tool in investment portfolios buoyed gold prices.

Various European countries, including Spain, Italy and France, also recorded double-digit percentage declines in their GDP for the second quarter on Friday. The heightened concerns supported gold trading.

Gold futures for December delivery surged 1% to settle at $1,985.90 an ounce on Friday, with the bullion recording a 4.7% surge last week. The yellow metal booked a rise of 10.3% in July, recording the best monthly gains since February 2016.

September silver gained 3.7% to end at $24.216 an ounce, after declining around 4% on Thursday. For the week, silver posted a 1.2% decline, with the white metal surging around 30% last month.

In other metals, September copper declined 1.6% to $2.868 a pound, recording a weekly loss of 1%, but settling higher by 5.1% for the month. October platinum rose 0.7% to end at $918.90 an ounce on Friday, notching a monthly surge of 8%.

What to watch: The continued rise in coronavirus cases around the world has cast strong doubts around the pace of recovery in the global economy. While this may continue to support precious metal prices, some profit-taking may be expected, as the prices climb past their record highs.

Gold prices are expected to remain elevated this month, unless there is a dramatic decline in covid-19 cases. Gold futures traded up 0.5% to reach $1,996.00 an ounce in the European session.

The Markets Today

     

US stocks will be in focus today, ahead of a basket of economic reports scheduled to be released later in the day.

Context: Wall Street made a sharp recovery late Friday and closed higher, after remaining in the red for most of the session. Blowout earnings from big tech companies lifted market sentiment.

Details: Investors were cautious after the energy sector reported poor results, with Exxon Mobil recording its biggest quarterly loss, while Chevron’s results were the worst in around three decades.

US stocks also traded down following downbeat consumer sentiment data, with the final reading of the index for July declining to 72.5, from an initial estimate of 72.9.

Concerns remained around the virus outbreak, with the US once again reporting record deaths from the pandemic in Texas, Florida and Arizona.

Despite these concerns, investors took solace in the progress made with the latest covid-19 relief bill, as the Fed’s expanded jobless benefits expired on Friday.

Investors also focused on results reported by tech companies. The GAFA giants – Google, Apple, Facebook and Amazon - all reported stronger-than-expected results for the latest quarter after the closing bell on Thursday. Shares of Apple jumped more than 10% to a record high on Friday, while Facebook’s stock climbed 7%.

The Dow Jones index gained 114.67 points to end at 26,428.32 on Friday, while the S&P 500 rose 0.8% to 3,271.12. The tech-laden Nasdaq 100 jumped 1.5% to close at 10,745.27.

For the week, the Dow Jones index slipped 0.2%, while the S&P 500 added 1.7% and the Nasdaq 100 climbed 3.7%.

What to watch: Investors await a basket of economic reports from the US, including the manufacturing PMI, construction spending and ISM manufacturing PMI. The IHS Markit manufacturing is expected to rise to 51.3 in July, versus a reading of 49.8 in June. Analysts expect construction spending to increase 1% in June, following a 2.1% decline in May. The ISM manufacturing PMI is projected to improve to 53.6 in July, from June’s reading of 52.6.

Investors will continue keeping a close eye on infections, with the total number of cases exceeding 4.6 million in the US.

Other Markets: European indices were trading lower at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index down by 0.4%, 0.3% and 0.7%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Spain’s vehicle sales and UAE’s money supply M3.