Sentiments are strongly bullish for Gold

Time and again, gold has enjoyed a safe haven status, and in the current pandemic scenario, investors are always on the verge of safe places to park their funds. Hence sentiments for the yellow metal have grown bullish, supported by demand and hence some analysts believe that currently gold has been overbought.

Furthermore, weakness in the dollar and low U.S Treasury yields are expected to provide further support to gold. The price of gold has extended its correction from the record highs above $2 070, registered in the first week of August. Despite this, there is no reason to panic and as long the price of gold is above $1 800 this precious metal is in the “buy” zone confirmed the spokesperson from RSBL.

The price of gold may be ready to advance higher as Federal Reserve announced that will keep interest rates lower for longer to support the economic recovery

U.S Fed kept the interest rates unchanged, as expected. The latest FOMC statement and economic projections signal are that the interest rates will stay at zero until the end of 2023. This is excellent for gold. 

On Wednesday, the Federal Reserve issued a statement regarding the FOMC meeting, which was held from September 15-16. The US central bank kept the interest rates and the conditions of its quantitative easing unchanged

U.S. weekly jobless claims report on Thursday showed a smaller-than expected decline in new claims, weighing on the dollar and bolstering the appeal of gold as an investment alternative.

The unemployment rate is forecasted to be around 7.6 percent in 2020, compared to the 9.3 percent seen in June. The fact that the recovery has progressed quicker than expected is bad news for the gold prices. But still, the overall economic activity remains well below the pre-pandemic level.

U.S. data also showed that more Americans submitted unemployment claims than forecast, with 860,000 initial jobless claims against the estimated 850,000. The data also showed that almost 30 million Americans were claiming unemployment benefits as of the end of August.

When it comes to the PCE inflation, the FOMC now sees higher inflation in 2020 (1.2 percent) than June when they expected only 0.8 percent. However, the FOMC projects that the inflation rates will be below their target until 2023, which is an excellent excuse for continuing their dovish monetary policy, thus supporting gold prices while the dollar declines.

Last week's trading saw gold forming its high in Wednesday's session, here doing so with the tag of the 1983.80 figure. From there, a decent decline was seen into Thursday, with the metal dropping down to a bottom of 1938.20 - before bouncing off the same into the weekly close.

Gold prices gained on Friday buoyed by a weaker dollar and lingering concerns over an economic recovery from the damage inflicted by the coronavirus pandemic that were underscored by elevated weekly U.S. jobless claims data.

Spot gold climbed 0.6% to $1,953.80 per ounce during Fridays trading hours and was on track for a second straight week of gains, rising 0.7% during the day.

RiddiSiddhi Bullions Limited confirmed that sentiments are strongly bullish for gold as markets expected prices to rise higher and even hover in that zone for a long time.

An environment of negative real interest rates, uncertainty over the global economic future and global uncertainties, such as the upcoming U.S. presidential election, are among the reasons that have pushed investors to build up their gold holdings.

Meanwhile, in the domestic markets, market participants await prices to stabilise as the festive season begins.  Hopes prevail in the markets that demand might rise, over price stability. 

All eyes on Fed Meet

Time and again, gold has been considered as a safe haven asset. In recent times, gold did deviate from this notion in March, as its prices fell following a crash in global stock markets.

This deviation underlines the uncertainty that gripped investors that month, with some gold owners presumably selling bullion to cover losses or to increase cash holdings.

But the past 3-4 months, have brought a significant  rally in gold prices. Though gold witnessed a few dips, but it managed to bounce back.

Last Friday, gold closed at $1,938 per ounce, up $14 for the week on excellent volume, considering it was a holiday week. During the trading week, gold showed excellent stability, closing the four days trading within a $20 range from high to low.

After reaching an all-time high of $2,070 on August 7th and seeing a selloff (profit taking) on August 12th, taking the price down to $1,870, we are now seeing base building. 

Last week gold had weakened over news of renewed vaccine. This hope triggered a strong DOW Fut at +285 and whole Asian markets mood lifted owing to that. The Oxford and Astrazencia vaccine trial resumed, but the number of patients across U.S, India, France and Brazil continued to rise. Some worrisome news came from France where initial talks of 1 week shut-down were under consideration. Moreover, Israel will also be doing it shortly. So, these are new dangers for the global post-Covid growth that is being factored by the markets. 

Gold rose to its highest in nearly two weeks on Tuesday, propelled by a softer dollar and expectation that the US Federal Reserve will reinforce its accommodative monetary policy.

Spot gold rose 0.6% to $1,968.94 per ounce on Tuesday, having earlier climbed to $1,971.71, its highest since Sept. 2. 

Once again gold was riding high over bullish sentiments. In the past five sessions, gold had four positive closes and it continued to rally on Tuesday morning. 

Gold (XAU/USD) built on Monday’s 1% rally after a steady start on Tuesday, reaching fresh nine-day highs at $1967. 

The main highlight in the past few days were-

• an improvement in the risk-sentiment

• courtesy of the vaccine hopes

• upbeat Chinese data 

• renewed US-Sino trade optimism

A good sign in the ongoing global crisis were the Chinese activity numbers that came in stronger than the estimates, suggesting the economic recovery is gathering steam. China’s industrial production in August was up 5.6%, year-on-year, and up 1.0% from July. Meantime, U.S. industrial production rose 0.4% in August from July, failing to meet expectations for a 1.0% rise in the period. However, July industrial production was revised up 0.5%, to a 3.5% rise from June. Also, news that China extended tariffs exemptions on some of the US good imports further fuelled the market optimism.

But markets were more focussed on the events lined up this week.

Gold futures on Tuesday headed higher and aimed for a second straight gain as investors awaited dovish statements from global central banks that are likely to support bullion buying in the midst of the global coronavirus pandemic.

There are going to be important policy decisions from major institutions- The Federal Reserve, Bank of England followed by Bank of Japan.

Bullion dealers across India and around the world as well as investors are expecting policy makers to promote a regime of low interest rates for a prolonged period to combat COVID-19, which could lift both gold and stocks further, commodity analysts forecast.

Given the current situation, central banks are expected to convey a dovish message to the markets which would further result on higher gold prices.

Prithviraj Kothari of RSBL suggests that market participants now await the U.S. Fed’s two-day policy event which ends on Wednesday, its first such meeting since Chairman Jerome Powell unveiled a policy shift towards greater tolerance of inflation, effectively pledging to keep interest rates low for longer.