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  • Gold specs bailing out amid near-term risk-on prospects.
  • Longer-term upside prospects leave gold a longer-term investment.

The price of XAU/USD is at $1,727.88, -0.45 and has sunk from a high of $1,735.67 falling to $1,721.61 on the day. Gold is a complicated mix of deflationary and reflationary expectations as well as serving as a safe haven in the face of COVID-19 headwinds and geopolitical tensions. 

As we start the week, UK and US markets are closed for holidays. Asian and European markets have been buoyed by the prospects of a pick-up in economies which will get a boost from pent up demand and consumption following the relaxation of lockdown measures. The US dollar has been mixed, although both gold and the dollar can rise and fall at the same time in current market conditions. This is owing to both the greenback and the yellow metal’s safe-haven qualities. 

We have seen depressed US yields amid expectations that the US Fed and the US government will continue to deliver whatever monetary and fiscal policy is necessary to support the economy, all of which have been supporting US equities. Both gold and the USD are negatively correlated to equities right now. US futures started the day 1% higher which also weighed on the price of gold to start the week. However, there is an underbelly where the same environment can support the price of gold, but not stocks at times of souring risk sentiment.

Money managers have been aggressively growing their long gold exposures. There have also been expectations that the USD upward momentum would start to reverse as the global economy starts to open up while the COVID-19 curve begins to plateau. At this juncture, it is a very key time in the cycle and position for gold on the charts. 

Speculative bids are being pulled

“As for precious metals, position-squaring is the name of the game,” analysts at TD Securities explained. “The gold market has struggled to regain the liquidity lost following the dash-for-cash. This has created market conditions where changes in positioning are having an outsized effect on prices.”

Nonetheless, we expect that when the dust settles, capital will seek to shelter itself from a prolonged period of negative real rates, leading to substantially higher investment demand for gold.

Gold levels