Gold Bracing for a Bearish Correction - Quick Update!
Today in the early trading session, the yellow metal prices hit the $1,970 level but erased its early-day sharp gains after facing rejection just below the record high of $1981.34. However, the market bias remained in favor of the yellow-metal bulls as they have multiple factors to cheer today. The weaker U.S. dollar supported the bullish bias in the gold price. Notably, the U.S. dollar dropped more than two-year low after the U.S. Federal Reserve determined to maintain its benchmark rate near zero and expected to keep it unchanged at least until the pandemic subsides.
However, the renewed uncertainty surrounding the U.S. fiscal package, triggered by the differences between U.S. Senate members and coronavirus (COVID-19) tensions, also weighed on the market trading sentiment, which underpinned the yellow metal's perceived safe-haven status. Apart from this, the safe-haven-metal gains were also supported by the concerns about worsened US-China relations and the increasing number of coronavirus cases. Gold is currently trading at 1,964.84 and consolidating in the range between 1,959.33 and 1,971.78.
The Fed's policy report released after its two-day meeting directly tied the economic recovery to an end of the coronavirus health crisis. As in result, all Fed members voted to leave the interest rates between 0% and 0.25% and expected to keep the rate at that level it had been since March 15, when the pandemic was started until pandemic stops. So, the low-interests caused the weak U.S. dollar, which was very helpful to yellow-metal prices.
The risk-off market sentiment could be attributed to the uncertainties over the much-awaited fiscal package. The U.S. President Donald Trump signaled yesterday that his administration and Democrats are still far apart over the next round of U.S. fiscal stimulus measures, which also played its role in undermining the U.S. dollar. Considering the current situation of U.S. coronavirus damage, Tara Lee, spokeswoman for Washington Governor Jay Inslee, said that if Congress fails to give state and local governments financial support, the program's workers and families will face a very hard crisis to get back on their feet.
However, the downbeat trading sentiment in the equity market was further bolstered by the fears of COVID-19 cases in the U.S., which fueled worries that the economic recovery in the U.S. could be stopped in the wake of the resurgence in coronavirus cases. As per the latest reports, the number of cases globally almost crossed 17 million, with 4.4 million cases and more than 150,000 deaths in the U.S. individually, as per Johns Hopkins University data. In the meantime, China, South Korea, and Japan have also reported a sharp rise in confirmed cases. Japanese media reported that 365 new infections were recorded in Tokyo on Thursday. The U.S. virus cases continuously picked the pace with an average of around 65,000 new cases reported each day, which eventually put a brake on the recovery in economic activity and reduced hopes of V-shaped recovery. However, these fears have significantly influenced the market trading sentiment and provided support to the yellow-metal prices to hit the records high.
The broad-based U.S. dollar reported losses on the day and dropped more than two-year low as the Fed has repeatedly promised to curb damage from the virus because non-stop virus cases hamper the economy. As a result, the low-interests exerted pressure on the U.S. dollar and made it weak, pushing gold prices higher. Elsewhere, the U.S. dollar losses could also be associated with the policymakers' deadlock over phase 4 of the stimulus package. However, the U.S. dollar losses helped the gold prices stay higher as the price of gold is inversely related to the price of the U.S. dollar.
Besides this, the on-going U.S.-China tussle also pushed investors towards gold. As a result of a worsened relationship, the dispute could be headed for a total breakdown of relations. It is worth recalling that Mike Pompeo called for an end of the "engagement" policy that has defined the two countries' relations for decades. As in result, most of the analysts expect that these intensifying tensions will also damage the trade that exists between the two countries.
The market players will keep their focus on critical U.S. Q2 Preliminary GDP report for fresh trading impetus on the yellow metal. The market will also keep their eyes on the USD price dynamics and coronavirus headlines, which could play a key role in influencing the intraday momentum.
Daily Support and Resistance
S1 1832.44
S2 1887.53
S3 1923.1
Pivot Point 1942.61
R1 1978.19
R2 1997.7
R3 2052.78
Gold towered distinctly to place a new fresh near 1,988 level and sank suddenly immediately after, and now it's trading at 1,952 mark. Gold may find immediate support at 1,959 level now, and bearish crossover below this level can lead its prices towards 1,945 mark. While an immediate resistance stays at 1,971 and above this, 1,981 will be extending major resistance. Bullish bias appears dominant over 1,957 level while selling bias remains strong below 1,957. Good luck!