Sentiments remain bullish for Gold

Last month, gold crossed $2,000 for the first time in history on the back of greater geopolitical tensions and a weaker dollar. It hit an all-time high of $2,063.68 on August 6.

But the rally has slowed down over the last month. Gold price closed at its lowest level in almost a week on Thursday at $1930.30.

The precious metal remained weak as price fell for the second consecutive day on 4th September. However, the pace of decline was limited as XAU USD is currently helped by the long term rising trendline. With the Stochastics oscillator in the oversold level and the possibility of a hidden bearish divergence, we could expect prices to pop back higher. But this could change if gold loses the trend line support. It will accelerate the declined in gold- down to the $1911.50 level of support.

The US jobs reports was better than expected with jobless claims at 8.8 lacs. The US trade balance ballooned at -$63B and a massive jump in imports. That exactly triggered a vital sign of U.S domestic economy and its incoming weakness.

Gold prices ticked down over important economic numbers released by the U.S –

  • US non-farm payrolls increased 1.37mn in August following a revised 1.73mn in July and slightly below consensus forecasts of 1.40mn.
  • The increase in manufacturing jobs was held to 29,000 and below expectations of 50,000.
  • There was a strong increase of close to 250,000 for the month, although the increase in leisure and hospitality was held to 174,000.
  • There was a further strong increase in government employees of 344,000 with some support from increased jobs related to this year’s census.
  • In August, the number of permanent job losers increased by 534,000 to 3.4 million after holding steady month over month at about 2.9 million in July. Since February, the number of individuals counted as permanent job losers has increased by 2.1 million.

Gold prices retreated further on Thursday, adding to its sharp drop in the previous session after its safe-haven appeal was dented by a stronger US dollar and an uptick in risk appetite following economic data that bettered expectations.
The US Federal Reserve, in its “Beige Book” report, highlighted that US business activity and employment ticked up through late-August, but economic growth was generally sluggish as Covid-19 hotspots hampered reopening. Gold has gained about 28 per cent so far this year, helped by ultra-loose monetary policy adopted by major central banks to mitigate the economic damage caused by the Covid-19 outbreak.

Gold has been one of the biggest bull markets of 2020, hitting record highs and attracting record investment. The rally has slowed down in the last month, raising the question of whether investors should hold so much of it.

But investors still believe that the precious metal can form up to 10% of a diversified portfolio.

The Fed and central banks across the world have poured billions of dollars’ worth of stimulus to help economies ride out the pandemic. This drives down interest rates and yields and increases gold prices.

When the dollar weakens, non-US investors prefer to buy gold as its cheaper because gold is quoted in dollars. So, any form of weakness in the dollar is usually supportive for gold.

So apart from other factors, the dollar will also play an important role towards growing gold prices. This has made bullish sentiments strong for the yellow metal in the near term.

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