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Gold Chart

Source: IG Charts

OUTLOOK: BEARISH

  • Gold prices[1] may fall with stock markets as Covid-19 cases rise in the US
  • Staggered reopening of the economy risks derailing recovery in inflation
  • XAU/USD[2] could also suffer if jobless claims statistics show another spike

Gold Prices May Suffer if Reopening is Delayed

Gold prices may come under fire if efforts to gradually reopen the economy are derailed amid concerns that doing so could undermine public health. Policymakers have attempted to navigate this labyrinth and balance economic integrity without increasing the rate of infection. A tilt toward easing lockdown measures opens the door to a spike of infections and the prospect of a delayed reopening of the economy.

Confirmed Covid-19 Cases: Global, US, Spain, Italy, Brazil and UK, S&P 500[3], Gold Prices – Daily Chart

Confirmed covid-19 cases

XAU/USD chart created using TradingView

Having said that, Treasury Secretary Steven Mnuchin last week said: “We can’t shut down the economy again. I think we’ve learned that if you shut down the economy, you’re going to create more damage”. Consequently, it appears that this leaves the decision of reopening in the hands of local lawmakers. Several states have already reported a spike in coronavirus cases with growing concerns that it could lead to an extended lockdown.

Initially, gold prices rallied after they bottomed out with stocks on the expectations that the fiscal stimulus measures and aggressive Fed easing would go hand-in-hand with an uptick in economic activity and inflation. However, if hopes for a speedy recovery are dashed and sentiment sours, the appeal of gold as a hedge against price growth in this environment may wane relative to its comparatively more liquid counterpart: the USD.

Gold prices and bloomberg correlation-weighted currency index

Powell Testimony May Hurt XAU/USD, FOMC Recap

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