Gold Prices Slip as Investors Stockpile Cash, Stronger Dollar Outweigh Stimulus

Gold

The prices of gold today edged lower at the European open as investors appear to prefer to have cash than the safe-haven metal.  Investors went into cash stockpiling as the stimulus measures issued by central banks appear to have been overshadowed by national lockdowns implemented to reduce the economic impact of the COVID-19 crisis.

U.S. gold futures rose by 0.5% to $1,491.70 an ounce but spot prices dropped by 0.6% to $1,488.35 an ounce as of 0641 GMT. Spot gold gained as much as 3.1% in the previous trading session spurred by a series of stimulus packages.

The coronavirus has already infected more than 300,000 and killed more than 14,000 worldwide. The crisis has further sunk the global stock market. But the U.S. dollar remains close to its three-year high because of concerns about tightening liquidity.

Vandana Bharti, SMC Comtrade’s assistant vice-president of commodity research, noted the outflow of capital from all sectors. She said that the precious metal appears to have indeed temporarily lost its safe-haven status. But it is not fundamental nor technical, it is simply because of panic among investors.

AxiCorp chief market strategist Stephen Innes highlighted the possibility for some central banks to stop buying gold and sell them instead to buy dollars. Governments around the world are in desperate need of cash to cushion their economies against the pandemic.

Another factor working against the yellow metal is the decline in demand from India and China, the two largest consumers of physical gold in the world. According to Refinitiv Metals Research, gold imports in India dropped by 26% in the first two months of 2020 compared to the same period of 2019. In China, official figures are not yet available. But its imports from Singapore in February was only 2.2 tons, from 17 tons in December. From Switzerland, Chinese imports plunged 2 tons, from 17 tons in January.

Meanwhile, the markets are hoping for another policy easing by the U.S. Federal Reserve. The Fed is currently working with other major central banks to alleviate the global dollar funding crunch. The U.S. Senate is deliberating on a trillion-dollar coronavirus stimulus package.

On the technical front, Reuters’ technical analyst Wang Tao expects spot gold to retest a support price level at $1,452 an ounce. He said a move away from this level could send the bullion down to $1,374 per ounce.

Technical Analysis

(Contributed by Jignesh Davda)

XAUUSD Daily Chart

Gold prices made a notable technical break last week after falling below a rising trend channel and slicing through support at $1562. Further, the 200-day moving average has been breached for the first time since 2018. The near-term focus will be on the indicator, currently near $1500. A break above it could lead to a test of prior support turned resistance at $1562.

To the downside, $1455 is seen as strong support. It held the index higher in the fourth quarter and has capped the downside over the past few sessions. A break below it could lead to an acceleration in selling.

Metals traders should also keep an eye on the dollar. The trade-weighted dollar index (DXY) is currently hovering around major resistance at 103.00. This level served to trigger a notable turn at the start of 2017. A break above it could lead to an acceleration in  dollar buying which stands to put further pressure on precious metals denominated in dollars.