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Last Updated : Jul 10, 2020 11:38 AM IST | Source: Moneycontrol.com

Gold may hit $1,848 as spike in COVID-19 cases raises recovery concerns

Unless virus spread in US stalls, a weaker outlook for the American economy is likely to keep the pressure on the dollar.

Moneycontrol Contributor

Ravindra Rao

Gold prices have surged to 2011 high of above $1,800 an ounce, setting off a chatter of the metal setting a new price record.

Concerns over acceleration in virus outbreak, worsening US-China relations, continuing stimulus measures by governments, a weaker US dollar and huge investor inflows are enough reasons more gold to hit a new high. Meanwhile, equity markets are struggling to build on the gains noted in June amid increasing uncertainty about economic recovery.

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Global virus cases have breached the 12-million mark, as per Johns Hopkins data. Market players are particularly concerned about the spike in cases in countries like the US and Australia, as it shows that a rushed reopening and lax attitude towards containment can intensify the virus spread.

Adding to uncertainty is the World Health Organization’s acknowledgment of emerging evidence of the virus being airborne, which means it can spread more easily. Overall, there are little signs that the outbreak will be controlled soon and this may keep investors interested in gold.

Data from major economies pointed to a pick-up in economic activity but market players are now concerned that rising virus cases and expiration of certain stimulus programme may affect the pace of recovery.

The US government passed the CARES Act to provide additional unemployment benefits for people who lost their jobs because of the pandemic. The programme is scheduled to end in July and unless it is renewed it could affect economic activity.

The US and China have been at loggerheads over various issues like handling of virus outbreak, US withdrawal from WHO, new security law for Hong Kong and China’s activities in South China Sea, etc.

Tensions between the US and China have grown as both sides imposed tit-for-tat visa restrictions over Tibet. They have so far refrained from targeting the trade deal signed in January, market players are concerned that increasing friction may affect the agreement, adding to challenges faced by the global economy.

The US dollar index has been on a general downward trend for the last few weeks as improved risk sentiment reduced its safe-haven appeal. The currency came under additional pressure amid diverging virus situations in the US and European economy. While the US is witnessing a record surge, the situation is stable in Europe and member states are moving ahead with reopening plans. Unless virus spread stalls in the US, a weaker outlook for the American economy may keep pressure on the dollar.

On the technical front, Comex gold (active contract) has moved out of the resistance near $1,800 per ounce and now the bulls may target the next resistance zone of $1,848. Immediate support now is at $1,800 and strong reversal support remains at $1,750.

(The author is VP - Head Commodity Research at Kotak Securities.)

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​
First Published on Jul 10, 2020 11:38 am
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