Tuesday, July 28, 2020

Can Gold Top $2,000 Amid Rush for Safer Assets?

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News shaping
the markets today

     

What’s happening: Gold prices rushed past $1,940 to set a record high on Monday and seems to be on course to breaching the $2,000 level.

What happened: Rising covid-19 cases globally, flaring tensions between the US and China and inflation fears had investors scurrying for safe-haven options, triggering a rally in precious metals.

While gold has risen steadily since mid-June, the yellow metal has maintained a steep upturn for more than a week now. Gold futures jumped to an all-time high of $1,941.90 per ounce on Monday and have gained more than 7% in July. Despite the rally, some analysts believe gold can breach $2,000 soon.

Why it matters: The persistent rise in infections benefitted gold prices. Investors continued to worry about the surge in covid-19 cases in the southern states of the US. The resurgence of cases in Spain triggered fears of the second wave of infections swelling in Europe. Although governments seem hesitant to impose widespread lockdowns again, a second wave could cripple an already battered global economy.

Sentiments remained strained, as the US flag was lowered at the consulate in Chinese city of Chengdu, after Washington ordered Beijing to close the consulate in Houston last week.

While investors added more safe-haven options to their portfolios, amid economic and geopolitical uncertainties, inflation fears kept the greenback under pressure. The US dollar continued its downward momentum on Monday, plunging towards its lowest level since 2018. The ICE US dollar index, which measures the currency’s performance versus a basket of major currencies, declined 0.9% to 93.64, after losing almost 4% since the beginning of July.

As investors brace for higher inflation amid expectations of additional government stimulus, analysts widely expect gold prices to continue to find favour and breach the $2,000 mark. Inflation erodes Treasury yields, which exerts pressure on the US dollar and backs gold buying.

Gold futures for August delivery added $33.50, or 1.8%, to close at $1,931 an ounce on Monday, after reaching a record intraday high of $1,941.90. The settlement surpassed the earlier record of $1,897.50 an ounce set on Friday.

The yellow metal had climbed 4.8% last week to record its highest weekly percentage gain since April.

In other metals, September silver also spiked 7.2% to close at $24.501 an ounce on Monday, recording its highest settlement since August 2013. September copper rose 0.2% to $2.8975 a pound, while October platinum climbed 1.1% to $966.60 an ounce.

What to watch: As investors await the US FOMC (Federal Open Market Committee) to make an announcement regarding its monetary policy on Wednesday, gold could find support this week. Given the elevated gold prices and the steep climb over the past few days, some profit taking can be expected, although this does not seem to be the case yet. Gold futures traded higher by 1.9% to $1,967.90 an ounce during the Asian session today.

The Markets Today

     

The Swiss franc will be in focus today, with the currency hitting a five-year high versus the US dollar.

Context: The Swiss franc remained at its highest level since June 2015 as investors continued to dump the greenback amid rising tensions between the US and China and covid-19 related uncertainties.

Details: Coronavirus cases in the US have reached almost 4.4 million and related death toll has surpassed 150,000. As the most impacted states in the US – New York, California, Texas and Arizona – face the re-imposing of lockdown restrictions, investors remained concerned about a delay in the country’s economic recovery. Investors also kept their eyes on the US Federal Reserve, which is expected to announce additional stimulus measures later this week.

Meanwhile, SNB (Swiss National Bank) President Thomas Jordan reiterated that the country’s central bank will continue to intervene in the forex market to prevent the surge in the franc in order to avoid deflation in the economy and take care of its export-driven economy.

Investors also expect Switzerland’s central bank to keep interest rates unchanged in the near term.

The USD/CHF closed the previous session at CHF0.9199. The forex pair was trading higher by 0.2% at CHF0.9219 in the Asian session.

What to watch: With no major economic data scheduled for release today by Switzerland, investors will remain focused on developments in the US and the world.

Markets await the announcement of the Swiss investor sentiment index, due for release tomorrow and will be a major influence of the currency’s performance.

Investors also continue to focus on coronavirus figures, with the total number of cases exceeding 16.4 million globally.

Other Markets: US indices trading closed higher on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.43%, 0.74% and 1.67%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Saudi Arabia’s bank lending growth and money supply M3, UAE’s money supply M3, Spain's unemployment rate, UK’s CBI distributive trades as well as the US Redbook index, S&P CoreLogic Case-Shiller 20-city home price index and Richmond Fed manufacturing index.