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- Gold held above key support at $1,800 per ounce in mid-July and eyed further potential gains due to its safe-haven appeal.
- Gold’s potential to rise further is due to fears over a possible second wave of coronavirus cases; expectations for more monetary stimulus to kickstart economies, and deteriorating U.S.-China relations.
- Donald Trump signed an executive order ending preferential treatment for Hong Kong. China said it would impose retaliatory sanctions on the United States.
- Some commentators see prospects for gold to test a multi-year peak around $1,825 in the coming weeks if investors continue to seek safety in the yellow metal.
“As long as prices remain above the $1,800 level, gold has the potential to test $1,815 and a fresh multi-year high at $1,825, respectively,” FXTM analyst Lukman Otunuga said in a note.
- “Should $1,800 prove to be unreliable support, the precious metal may experience a technical correction back towards the $1,765-$1,780 regions before bulls gather fresh momentum.”
- Consistently strong investor flows into gold-backed exchange-traded funds (ETFs) in recent months have been a barometer of upside potential in bullion prices.
- Gold was at $1,811.81 per ounce, up 0.08 percent, on July 15.
- The outlook for the value of gold savings in sterling terms appears to be resilient amidst the current economic turmoil.
- This is due to forecasts of a soft pound against the dollar, battered by struggling Brexit trade talks between the UK and the EU, and slower than expected GDP growth in May that will add to calls for further stimulus measures by the Bank of England, possibly leading eventually towards negative interest rates.
- If buoyant U.S. equities correct downwards, pressured by dismal second-quarter corporate results due to COVID-19, gold prices could see more gains.
“If gold and silver succeed in retaining their respective $1,800 (per ounce) and $19 (per ounce) levels they could well both go on to better levels in the weeks and months ahead,” wrote Lawrie Williams, precious metals commentator for bullion dealer Sharps Pixley. - “We still think that booming general equity prices are due for a major correction as the true COVID-19 effect on the global economy is better understood by the general public,” he added.
- “We reckon that overall gold and silver will both continue to outperform other commodities and the major equity indexes as the year progresses.”
- While most of the arguments appear to be constructive for gold prices, any rapid progress towards securing a vaccine against COVID-19 could trigger a selloff of bullion, analysts say.
- Gold held above key support at $1,800 per ounce in mid-July and eyed further potential gains due to its safe-haven appeal.
Frequently asked questions
Why has gold been holding above the 1800 dollars support level?
Gold has maintained its strength above the key support level of $1,800 per ounce due to its strong safe-haven appeal among investors. This demand is being driven by several global factors, including widespread fears of a potential second wave of coronavirus cases and worsening diplomatic relations between the United States and China. Additionally, expectations for further monetary stimulus packages to kickstart struggling global economies have boosted the precious metal’s appeal.
As long as the price of gold remains securely above this $1,800 threshold, market experts believe it has the necessary momentum to test higher levels. It could potentially reach $1,815 and then move on to target a fresh multi-year high of $1,825 in the coming weeks. Continued strong investor inflows into gold-backed exchange-traded funds (ETFs) have further confirmed this strong upward potential for bullion prices.
What happens to the gold price if the 1800 dollars support fails?
If the $1,800 support level proves to be unreliable, the price of gold is expected to undergo a technical correction. Analysts suggest that the precious metal could temporarily retreat back towards the $1,765 to $1,780 price regions. This downward movement is viewed as a temporary setback rather than a long-term trend reversal, allowing buyers to regroup.
Such a technical correction would likely serve as a consolidation phase where bullish investors can gather fresh momentum. Once this support base is re-established at these lower levels, it is anticipated that the upward trajectory could resume. This potential correction highlights the importance of the $1,800 mark as a psychological and technical line in the sand for short-term trading sentiment.
How is the UK economic situation affecting sterling gold savings?
The outlook for gold savings in sterling terms remains highly resilient because of the ongoing economic turmoil in the UK. The value of gold is supported by forecasts of a weak British pound against the US dollar. This sterling weakness is being exacerbated by slow-moving Brexit trade negotiations between the United Kingdom and the European Union, alongside disappointing GDP growth figures.
Slower than expected GDP growth in May has intensified pressure on the Bank of England to introduce further economic stimulus measures. This could eventually lead the central bank to implement negative interest rates, which typically makes non-yielding assets like gold much more attractive. Consequently, UK investors holding gold savings may see their value preserved or enhanced in sterling terms as these local currency pressures persist.
What role do stock markets and corporate earnings play in gold prices?
The performance of stock markets and corporate earnings has a direct, inverse relationship with the movement of gold prices. If general equity markets experience a downward correction, it is highly likely that gold prices will experience further gains. Many analysts believe that the current booming stock prices are overdue for a major correction as the true economic impact of the pandemic is realised.
This correction could be triggered by dismal second-quarter corporate results that reflect the damage caused by the pandemic. If investors begin to withdraw their capital from struggling equities, they are likely to seek safety in precious metals. Commentators predict that overall, gold and silver will continue to outperform both other commodities and the major equity indexes as these economic realities become clearer to the general public.
Could any specific developments trigger a sudden fall in gold?
A rapid selloff in gold could be triggered by any swift and significant progress towards securing an effective vaccine against COVID-19. Because much of the recent surge in gold prices is driven by economic uncertainty and the safe-haven demand caused by the pandemic, a medical solution would change market sentiment. A vaccine would greatly reduce the perceived global economic risks.
Should a vaccine become widely available, investors would likely regain confidence in traditional economic activities and riskier assets. This shift in sentiment would cause capital to flow out of defensive assets like bullion and back into equities and other commodities. Consequently, while current market conditions are highly constructive for precious metals, a breakthrough in pandemic recovery represents the main downside risk for gold prices.
