GOLD PRICE OUTLOOK:
- President Trump refused to sign a US$ 900 billion stimulus package approved by US Congress
- Gold prices rebounded from the 50-Day Simple Moving Average (SMA) line after the news
- A potential wider spread of the new coronavirus strain threatens further lockdown and travel bans
Gold prices edged higher on Wednesday amid a new round of pandemic concerns that raised the prospects for further easing and stimulus hopes. Meanwhile, President Trump unexpectedly rejected a US$ 900 billion stimulus package that was approved by the US Congress after months’ of negotiations. The abrupt move led to heightened uncertainty and souring sentiment ahead of the holiday season.
The potential for wider spread of a new coronavirus strain found in the UK, which is reportedly a lot more transmissible than the original, may lead to stricter lockdown measures and prolonged travel bans until new vaccines are developed and become widely available. That said, the emerging of virus mutations may derail a seemingly smooth recovery trajectory, pointing to further need for stimulus and monetary easing – a direct boom for precious metals. According to Bloomberg, the new Covid-19 strain is possibly already in the US, Germany, France and Switzerland.
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More encouragingly, capital outflow from the world’s largest gold ETF – SPDR Gold Trust (GLD) –appears to have slowed in the past week. The number of shares outstanding for the ETF has reduced by an amount of 0.9 million, compared to 3.3 million in the week before. Yet it still marks a tenth consecutive weekly outflow (chart below). This suggests that the pace of redemption has slowed, reflecting a pickup in demand for goldamong ETF investors.
The number of GLD shares outstanding has fallen from a recent peak of 437.8 million on September 21st to 400.1 million lately, marking a 8.6% decline. Gold prices and the number of outstanding GLD shares have exhibited a strong positive correlation of 0.95 over the past 12 months (chart below).
Gold Prices vs. GLD ETF Shares Outstanding
Source: Bloomberg, DailyFX
Technically, gold prices have likely broken above a “Descending Channel” that formed since early August (chart below). Prices have since pulled back to test the ceiling of the channel, which is now at around US$ 1,850. If this support level fails to hold, price may fall back to the “Descending Channel” and the downward trajectory may continue.
Since the start of December, gold prices are attempting to form higher highs and higher lows. This is an encouraging signal for traders who are holding a bullish view on gold. If prices clear above recent high of US$ 1,890 and aim higher, this may signal a medium-term trend reversal.
Immediate support and resistance levels can be found at US$ 1,860 (the 50-Day SMA) and US$ 1,890 (100-Day SMA) respectively.
Gold Price – Daily Chart
of clients are net long.
of clients are net short.
IG Client Sentiment indicates that retail gold traders are leaning heavily towards the long side, with 82% of positions net long, while 18% are net short. Traders have added long (+6%) while trimming short (-8%) positions overnight. Compared to a week ago, traders have increased long (+4%) bets while reducing short (-24%) exposure.
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— Written by Margaret Yang, Strategist for DailyFX.com
To contact Margaret, use the Comments section below or @margaretyjy on Twitter