Technical Chart of the day: Daily XAUUSD - Gold
Gold remains above $1600, a strong support after the precious metal recovered from near-$1500 levels reached last week despite the US package lowering demand for safe-haven assets.
Chicago Mercantile Exchange(CME) announced a number of steps to calm the market including a new gold futures contract under which 400-ounce bars would also be deliverable against the London 400-ounce gold contract in addition to 100-ounce bars previously. Gold had been supported by tightness in the physical market with gold refiners and miners shutting down their operations in Switzerland, the EU and South Africa. With airlines reducing capacity and flights, gold dealers also faced issues over transporting bullion. The tight supply and new gold purchases had sent futures gold contracts in New York skyrocketing to the highest premium over spot gold in London to reach the highest levels since the 1980s.
Massive stimulus by central banks and fiscal measures by governments would be highly supportive for Gold as developed economies get flushed with liquidity.
Structural Gold Drivers : Covid-19 has been supportive for Gold as a safe-haven asset as the number of unknowns about the spread of the epidemic remains large. Financial uncertainty combined by low interest rates are bolstering Gold investment demand. Net Gold purchases by Central Banks remain robust. Expectations of weaker economic growth in large consumers India and China may result in weaker demand and act as a damper on prices.
Market View: Fundamentally bullish. Central Banks are boosting liquidity in financial markets, lowering interest rates and rising money supply. However, the short-term view is very sentiment driven with traders reacting to news. The coronavirus spread is intensifying in countries like the US and Spain where measures to contain the Virus have not been very effective. Uncertainty continue to weigh on risk sentiment, which is positive for gold in the longer term.