To the bears who worked so hard to drive gold down from $2,000 an ounce, what’s happening now must be quite unbelievable.
In a somewhat reverse playback to last Tuesday’s nosedive, gold has recaptured its old 2K perch after a fresh slide in U.S. Treasury yields this week hammered the Dollar Index again, triggering an investor flight to safe-havens.
While the turn-about in six days was remarkable, what it lacked was the drama from a week ago. In Monday’s trade, gold futures on COMEX soared just over $50 to reach Monday’s highs of $2,000.30—compared to its “Black Tuesday” crash of $93 that brought the yellow metal to below $1,875 at one point last week.
Still, Monday’s settlement gain of nearly $49, or 2.5%, was the highest for a day since April 22. And gold bulls are showing their appetite for the upside hasn’t waned, pushing COMEX’s benchmark December futures to nearly $2,005 in Tuesday morning trade in Asia.
Has Gold Changed? Not Really, Say Some
Gold has some way to go before it can rewrite the Aug. 7 record high of nearly $2,090 on COMEX. Just a few weeks back, a gap of less than $100 on the upside could have been closed in two or three sessions. But the events of Black Tuesday may have changed that.
Some say an attempt for $2,100 pricing or higher will take longer to materialize than it typically would have at the start of August, given the attendant volatility that’s come into the market over the past week.
Others disagree.
“Gold markets continue to march higher as we have seen the metal recover quite nicely from the $1,900 region,” said Christopher Lewis, a precious metals analyst who writes on FX Empire.
He added:
“With that in mind, I think that we continue to see a lot of buying on dips, as a lot of traders will have gotten shaken out but then have come to realize the fact that the market has not crushed the trend, only slowed it down.”
There Will Be Those Chasing 'Cheap Gold'
Lewis argued that there is solid ground for a gold rebound given that December gold’s low of $1,875 on Black Tuesday was still above the 50-Day Exponential Moving Average of $1,851.50.
“Because of this, I do believe that shorting this market is all but impossible and that it is only a matter of time before traders would take advantage of ‘cheap gold,” he wrote in a Tuesday blog.
Lewis added that he expected central banks around the world to continue to flood the markets with liquidity.
“With that in mind, the trend higher makes perfect sense and I would anticipate it to last for quite some time. Ultimately, this is a market that I think finds plenty of buyers on dips regardless, because quite frankly most fiat currency around the world is going to continue to get crushed.”
Dollar Index Tottering Again
The Dollar Index is tottering again this week, reaching a near two-week low on 92.61 on Tuesday. The yield on the U.S. 10-year note plunged almost 4% on Monday and remained slightly lower on Tuesday.
“The Dollar Index is likely to test falling channel support at 92.40 in a day or two,” said Sunil Kumar Dixit, another independent chartist on gold.
“If it breaks below 92 decisively, gold could easily soar to $2,100 and beyond.”
Neither the dollar nor yields will likely be helped by what the Federal Reserve will say on Wednesday via the release of its July meeting minutes.
Since the start of the U.S. coronavirus outbreak in March, the Fed’s Federal Open Market Committee, or FOMC, has vowed to keep U.S. rates at near zero until the United States recovers from the pandemic. The U.S. central bank has also allocated a few trillion dollars under its own unlimited balanced sheet, aside from what Congress has budgeted, to provide lending to distressed businesses and credit markets.
“Looking ahead, the bright metal will continue to draw support from broad-based U.S. dollar weakness amid falling Treasury yields and nervousness ahead of Wednesday’s FOMC minutes,” said Dhwani Mehta, analyst at FX Street.
Peter Hanks, who blogs on Daily FX, concurs.
“There is little to suggest that yields will be revived in the near future, so the bull case for the yellow metal remains and the next barrier for gold may reside near its all-time high at $2,075,” Hanks wrote in a Tuesday post.
Plunging U.S. yields aside, any escalation in U.S.-China tensions could result in more strength for safe-haven gold, Mehta of FX Street said.