Price of Gold Fundamental Daily Forecast – Tug of War Between Traders and Investors Continues
Gold futures are trading flat for a third session on Wednesday as investors continue to weigh the massive global stimulus measures to ease the economic blow from the coronavirus pandemic against the improving risk sentiment being fueled by the easing of virus-related restrictions and lockdowns. Essentially, we’re seeing a tug of war between short-term traders and long-term investors.
At 08:13 GMT, June Comex gold is trading $1713.40, up $2.80 or +0.16%.
Short-term traders are being influenced by the reopening of the global economy. If successful, this could mean interest rates could inch a little higher, which should strengthen the U.S. Dollar and pressure dollar-denominated gold.
Longer-term traders remain bullish, however, because they see loads of fiscal and monetary stimulus. They also believe that central banks are going to be playing it loose for at least a year while holding interest rates at zero or perhaps lower. Furthermore, investors are still holding onto gold just in case they need to sell to raise cash to cover stock market losses or margin calls.
Normal Relationship with Stocks Has Returned…at Least Temporarily
As I said earlier, longer-term investors are holding onto gold for protection against stock market volatility, however, we’ve seen evidence lately that gold and stocks have returned to their normal negatively correlated relationship. In other words, as demand for risk increases, gold has been weakening, and vice-versa.
This relationship was pretty clear on Tuesday after comments from Federal Reserve Vice Chair Richard Clarida shook up the stock market with some somber comments, fueling a late session recovery in gold.
Clarida told CNBC on Tuesday that the U.S. economy is likely to contract sharply during the second quarter and the unemployment rate could surge due to intentional business shutdowns prompted by the coronavirus pandemic, but there is a chance the recovery could start in the second half of the year.
“We’re living through the most severe contraction in activity and surge in unemployment that we’ve seen in our lifetimes,” Clarida said.
Of particular interest to bullish long-term gold traders on Tuesday was Clarida’s reminder that the Fed is using its full range of tools to soften the economic blow of the virus, including low interest rates, forward guidance, asset purchases and a suite of emergency lending facilities meant to keep credit flowing to businesses and households.
At the same time Clarida was providing reasons for holding onto gold for the long-run, he was also giving short-term traders enough reasons to be cautious by saying policymakers are taking steps to help make the recovery as robust as possible when it arrives.
However, Clarida did caution that the timing of the rebound will depend on the virus.
“This pandemic does pose really considerable risk to the outlook, and the course of the economy is really going to depend on the course of the virus and the mitigation efforts,” Clarida said.
Essentially this means longer-term investors should maintain their bullish outlook, but be prepared for some downside pressure. Additionally, it’s not about chasing gold prices higher at this time. Instead, it’s about finding a quality entry point in a value area. So patience has once again become a virtue.
This article was originally posted on FX Empire
