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Three reasons gold is set for more gains

HYCM

By Giles Coghlan, Chief Currency Analyst at HYCM

Gold has further to go for the following three reasons. The primary reason for more gold upside is that there is more stimulus to come from around the world. The EU recovery fund was agreed yesterday and this puts pressure on the UK to add further stimulus to their economy as Brexit looms. Furthermore, the increase in COVID-19 cases globally, especially in the US, means that the Fed is likely to ease more which will suit gold upside. So, here are three reasons to support gold’s upside:

1. Fed officials have warned that the US outlook is getting worse and easing is the answer. Chicago Fed Chief said, ‘i’m worried about the downside risks and I think that’s how policy needs to be positioned’. John Williams and Raphael Bostic also gave additional signals.

2. The Bank of England is expected to add more stimulus to the UK economy as it is stuck with Brexit and COVID-19 struggles. Economists at Goldman Sachs think that the bank could signal in August that rates could turn negative.

3. Thirdly, Jean-Sebastian Jacques, head of diversified miner Rio Tinto and an executive keyed in with the heartbeat of the global economy says: ‘the uncertainty in the marketplace is because there is no doubt -it’s a question of when – we will have a second wave of COVID-19.

So, gold has taken out and been supported at the $1800 level. The $2000 is not looking impossible by year-end.

With some US jobs support ending in July and the furlough scheme in the UK running out in October we can expect more easing to come unless a radical treatment changes the outlook. See here for a relatively simple, but possibly effective, protein treatment from the UK normally used for MS patients.

Technical long entry

Any return back down to the broken 4hr trend line at $1815 should find buyers with stops underneath the trend line. Any break and close below the trend line and the bullish momentum is lost and expect longs to exit.


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