Gold Price Analysis: Investor’s appetite back on the rise, bulls not out of the woods

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  • Gold prices are consolidating the recent correction, with bulls in charge.
  • Should fear subside, gold could struggle, although is exposed to a renewed round of panic.

 The price of gold in the open on Monday is relatively quiet with the price trading between $1,609.11 and $1,621.24, slightly down at the time of writing at $1,615.33.  However, bulls have been in charge of a correction from the mid-March lows and Friday’s as COVID-19 continues to spread and play havoc on the global economy. 

  • COVID-19 Updates: A crucial week ahead for the debacle

Throughout last week, rising unemployment in the US saw investor appetite for precious metals rise and we saw a bid in precious metals with the price of gold rallying to US1,620/oz after a far worse than expected payrolls number in the US. More on that here: US NFP Quick Analysis: A grim future partially foretold.

“Signs of the recent tightness in the physical market easing tempered these gains. The average premium of gold coins to spot physical had ballooned out to USD50/oz in late March as the tightness reached its peak,” analysts at TD Securities explained. “That has since fallen to a discount of USD50/oz. Nevertheless, strong flows in gold-backed ETF funds show investor appetite for physical gold remains strong.” Indeed, the price is moving to territories that will have CTA’s shorts getting nervous. However, should the fear subside, then gold may struggle, although the situation is highly fluid.

Fear subsiding, gold to struggle? 

“We’re not out of the woods just yet in the coming weeks, as our sentiment readings suggest that fear has subsided. It’s worth reiterating that gold is a high beta asset to pandemic sentiment into the fear stage of the narrative, as the highly deflationary impulse from containment efforts could send real rates higher,” analysts at TD Securities explained, arguing that this leaves gold and other high beta assets exposed to a renewed round of panic.

“It’s worth noting that the narrative surrounding COVID-19 is itself highly contagious, as it encourages many repetitions for discussion, involves celebrities, and can easily be surrounded by many parallel narratives (such as the resulting economic fallout). These elements make a narrative highly contagious and can ultimately provide the lubricant for renewed rounds of fear. In this context, the left tail remains fat in precious metals.”

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