The prices of gold dropped slightly on Monday as risk appetite improves on the expected positive performance of the U.S. services sector in June. The steady dollar also weighed on the yellow metal but losses were capped by lingering concerns over the surge of new COVID-19 cases in the U.S.
Spot gold is currently trading at $1,775.80 an ounce as of 0814 GMT.
Fifteen U.S. states reported record increases in the number of new COVID-19 cases in the first four days of July. The virus has already killed more 130,000 Americans. The resurgence in new cases in the U.S. and other countries has dented hopes for a swift recovery of the global economy. Despite this, the financial markets have recovered previous losses as recent positive economic data lifted investors’ sentiments. The Asian stock market soared close to a four-month high on investors’ confidence that fiscal stimulus and super-cheap liquidity will be able to sustain global recovery.
CMC Markets’ chief strategist Michael McCarthy commented that the big gains in the Hong Kong and Chinese stock markets definitely weighed on the precious metal. However, the large amount of economic stimulus in other markets indicates a focus back on controlling infection rates and this can help maintain the “elevated status” of the bullion.
Phillip Futures added in a note that the growing number of U.S. states reimposing lockdowns will force the Federal Reserve to keep interest rates low. This would be supportive of the gold markets. Central bank stimulus and lower interest rates tend to support gold, which has gained almost 17% in 2020.
Meanwhile, the markets are waiting for the release of data on the performance of the U.S. services sector in June which is due today. The Institute for Supply Management’s index for non-manufacturing activity is anticipated to increase from 45.4 in May to 50.0 in June. This would mean that the economic contraction has abated.
On the technical aspect of trading, Reuters’ technical analyst predicts that spot gold is likely to break the resistance price level at $1,770 an ounce and jump into the $1,788-$1,795 range.