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Gold Fundamental Outlook Hinges on Shifts in Trader Sentiment

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Gold Talking Points

The price of gold pulls back from a fresh yearly high ($1748) despite the growing number of COVID-19 cases as President Donald Trump unveils fresh guidelines in opening up the US economy.

Fundamental Forecast for Gold: Bullish

The price of gold gives back the advance from earlier this month as the Trump administration outlines a three-phased approach to reopen the US economy, with Minneapolis Fed President Neel Kashkari, a 2020-voting member on the Federal Open Market Committee (FOMC) stating that the plan “seems consistent with the advice and the feedback that we’ve heard from health experts” during an interview with Fox News.

Mr. Kashkari went onto say that a staged approach “makes sense” amid the ongoing efforts to flatten the COVID-19 curve, and the unpresented measures taken by monetary as well as fiscal authorities may help to jumpstart the US economy as Chairman Jerome Powell pledges to “to ensure that the eventual recovery is as vigorous as possible.

In turn, the price of gold may face a larger pullback over the coming days amid hopes of a V-shaped recovery, but the fresh update to China’s Gross Domestic Product (GDP) report foreshadows a larger-than-expected slowdown in economic activity as the growth rate contracts 6.7% per annum in the first quarter of 2020 versus forecasts for a 6.0% decline.

The economic shock from the coronavirus is likely to influence the financial markets throughout 2020 as New York Fed President John Williams warns that the “extraordinary uncertainty about the future course of the pandemic have set off a tidal wave of flows of money away from riskier investments,” and the low interest rate environment may continue to act as a backstop for gold as market participants look for an alternative to fiat-currencies.

As a result, the fundamental outlook for gold remains constructive as the weakening outlook for global growth encourages a flight to safety, but shifts in trader sentiment may sway continue to sway gold prices as major central banks push monetary policy into uncharted territory.

With that said, recent price action warns of a larger pullback in bullion as it snaps the series of higher highs and lows from earlier this week, while the Relative Strength Index (RSI)reverses course ahead of overbought territory.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong