Gold Price Forecast – Rally Slows as Investors Await Final Approval of US Fiscal Stimulus

Gold Bars

Gold prices have rallied sharply higher over the past few sessions as the markets look to the US for a large fiscal stimulus package.

U.S. gold futures rose by 0.5% to $1,668.60 an ounce but spot gold prices fell by 0.3% to $1,605.45 an ounce.  Spot gold gained by more than 3% in the previous trading session and by around 1.6% earlier in today’s session.

The benchmark prices for spot gold remain below gold futures prices. This indicates the markets’ lingering concerns that the closure of metal refineries and air travel restrictions might affect gold shipments to the U.S. which in turn would affect meeting contractual commitments.

According to CMC Markets analyst Margaret Yang Yan, the precious metal appears to have been stripped of its safe-haven status and the price movements have nothing to do with fundamentals. The world is in an unprecedented situation where market sentiments cannot be easily explained or justified.

Yan noted the shortage in physical gold supply which may affect the ability of the futures markets to meet contractual obligations. She also highlighted the persistence of the “cash is king” sentiment among investors, which she believes will likely cause more market volatility.

National Australia Bank’s economist John Sharma added that the bullion benefited from investors’ expectations that the metal will maintain its value once the massive stimulus measures in the U.S. are approved. However, some investors are torn between staying with gold and liquidating their positions offset losses in other investments and go for the safety of hard cash.

COVID-19 has already infected more than 400,000 and killed more than 18,000 people around the world. Most governments have already issued stimulus packages to limit the negative economic impact of the pandemic. In the U.S., senior Republican and Democratic legislators said yesterday that they are close to finalizing the $2 trillion package.

In a related development, the holdings of the largest gold-backed exchange-traded fund in the world SPDR Gold Trust grew by 1.3% tons yesterday. This suggests that investors remain interested in the yellow metal.

Technical Analysis
(contributed by Jignesh Davda)

Gold daily chart

Gold prices have seen an increase in upward momentum after crossing above the 200-day moving average on Monday. The momentum seems to have subsided as the yellow metal is currently testing the lower bound of a previously breached rising upward channel. A break above the lower line of the channel shows the next level of resistance at $1652. If gold prices ease back from here, strong support is found at $1562.