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Thread: US$2,000 may be a new normal for gold

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    Default US$2,000 may be a new normal for gold

    CHARTPOINT

    US$2,000 may be a new normal for gold

    Mon, Aug 03, 2020

    Wilfred Chong

    https://www.businesstimes.com.sg/com...ormal-for-gold

    IN MARCH 2020, along with global equities, the benchmark Comex Gold futures fell from grace as it tumbled 14.49 per cent. Within the same period, Nikkei 225 and Hang Seng futures nose-dived by 19.4 per cent and 19.5 per cent respectively, and the S&P 500 futures saw 22.3 per cent of its value wiped out.

    Since the middle of July, gold has soared, cheekily up to a high of US$2,000 per ounce last Tuesday, before turning its head to settle at US$1,963.90, seemingly to wait on its prey - the Free Open Market Committee (FOMC) statement, which was due for release the next day.

    On the back of the ongoing Covid-19 pandemic and economic uncertainty, the Fed maintained the federal funds rate at 0 to 0.25 per cent. Gold futures spread its wings and rose boldly again, this time just shy of the previous day high at US$1,998.40 before settling at US$1,976.70.

    The S&P 500 was largely bullish through July, however, the same cannot be said for Asian equities.

    The US Dollar Index futures - a measure of the US dollar relative to a basket of world currencies - plummeted from 97.349 to 93.432 within July, the lowest in almost two years.

    Geopolitical tensions between US and China were ongoing even before the coronavirus outbreak with a series of tit-for-tat tariffs. Thereafter, there were the sanctions on Huawei by the US Commerce Department; China's alleged bullying of other Asian nations in the South China Sea; Beijing's imposition of a security legislation in Hong Kong; forced closures of China's consulate in Houston and the United States' consulate in Chengdu. All these along with a political blame game over the responsibility of the global health crisis.

    Technical analysis

    Looking at the daily charts, we can see that gold price has been moving within an upward trending equidistant channel. Gold price is also strongly above various moving averages of 14, 50 and 200 days.

    This continues to signify that gold is still moving with a strong upward trending momentum. This strong upward momentum has been further cemented by the establishing of the recent new all-time high for the price of gold at US$2,000.

    However, if we were to look within the equidistant channel, we notice that gold price is currently nearing the high of the channel. This could spell a potential retracement of gold prices. This is further supported by the use of a stochastics oscillator where price can be seen in the oversold region. The potential retracement would likely not be deep as there are technical supports inbound as evidenced by a Fibonacci retracement tool placed against the recent upward move from the last two weeks of July. We can see that immediate supports are formed by the 23.6 per cent and 38.2 per cent Fibonacci retracement levels.

    Momentum investing aside, according to the World Gold Council, a strong rally amid bleak economic outlook could be hindered with weaker domestic demand from India and China as disposable income falls and prices remain high.

    Could US$2,000 per ounce of gold be a new normal? It could very well be in 2020.

    The writer is strategist at Phillip Futures.

    Disclaimer: Chartpoint is provided by Phillip Securities Research for information only, and should not be construed as investment advice.
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