Navneet Damani
Over the last week, gold prices seem to be in consolidation mode and are holding firm above the psychologically important level of $1,800 per troy ounce, marking a high of $1,819 and low of $1,791.
Trade war between US and China, Hong Kong security law and spike in coronavirus infections contributed to the volatility in both gold and silver.
A few weeks ago, major economies completed or partially lifted lockdown restrictions but coronavirus continues to pose a threat, with more than 14.6 million infections and 6.06 lakh deaths reported across the world. Various economies have resumed and are going back to normal though the numbers of cases continues to rise.
Many companies have achieved success in vaccine and drug trials and are trying to come out with positive result at the earliest. Unless there is a cure and the number of cases and deaths slow down, panic will continue to affect market, supporting precious metal pack.
The US-China trade war is again taking a grip on the economy, adding to the overall distress. The Trump administration has made it clear that 'Phase 2 of the trade looks uncertain in the near future.
In fact, the exchange of barbs between the two countries has raised a question over so-called the Phase One deal was signed at the start of this year. There were some statistics that showed China's efforts to comply with the agriculture purchase from the US though the comments and the Hong Kong issue have increased the tensions.
In the previous week, comments from Federal Reserve officials showing concerns on the economy amid the spread virus continued.
The European Central Bank (ECB) and the Bank of Japan (BoJ) kept the interest rate unchanged and gave a dovish outlook on the economy.
In June, the ECB expanded its Pandemic Emergency Purchase Program by 600 billion euro, bringing the size of the stimulus program to $1.54 trillion to be deployed until June 2021, or until the bank believes the crisis is over.
On other hand, BoJ revised its growth forecasts and warned that risks to economic activity were skewed to the downside.
Investment in gold increased for the week ended July 12, and the holdings stand at 1,207 tonnes compared to 1,200 tonnes in the previous week.
Holding in ishares ETF increased by around 217 tonnes and holdings currently stand at 16,260 tonnes. Speculators continue to increase their bullish positions in Comex gold and silver contracts, though some selloff was seen amid the recent fall in the metal prices.
Outlook
This week, the economic calendar is comparatively light, apart from preliminary manufacturing and service PMI numbers, no major data is expected, which if positive could put pressure on metal prices.
Though market participants will continue to keep an eye on the US-China trade ties, the focus will also be on measures taken by governments to combat COVID-19, as it remains the core driver for high risk-sensitive markets like gold. Short-term bias could be choppy but the medium-term view remains firmly bullish.
(The author is VP – Commodities Research at Motilal Oswal Financial Services.)
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