Gold prices
Gold price (XAUUSD) is down slightly as traders react to the ongoing progress in the development of a coronavirus vaccine. The price is also reacting to two bullish calls by analysts at Citi and Standard Chartered. Gold is trading at $1,815, which is slightly below last week’s high of $1,818. Silver price is up by almost 1% while palladium has gained by 0.40%.
Analysts at Standard Chartered believe that gold price is heading higher as the need for hedging against risk rose. The analysts believe that bond yields will continue to fall because of the current monetary policy stand by the Fed and other central banks.
As we have written before, most central banks have brought interest rates to their historic lows. For example, in the US and Japan, the Fed and BOJ have gone a step further to implement an open-ended quantitative easing. This step has brought yields on government and corporate bonds down.
Meanwhile, risks are rising, with the number of coronavirus cases in the US continuing to rise. On a positive side, a number of companies are currently making progress in developing a vaccine. For example, in a statement today, AstraZeneca said that it was in the third stage of conducting tests on its vaccine.
Other risks that are rising include trade tensions between the United States and China. Also, as I wrote before, the UK and China are in the midst of their most serious tensions in years. Therefore, Standard Chartered analysts believe that gold price will rise as people shift to caution themselves against these risks. They wrote:
“We would incorporate these risks into our strategy in two ways: first, via gold – we see it as preferred given today’s low bond yields, but it has also demonstrated outperformance relative to risk assets during sharp equity drawdowns.”
Analysts at Citi also believe that gold price will continue to rise. In a note to investors, they cited macro factors like low interest rates, low real yields, inflows in the ETF market, and increasing asset allocation as potential drivers. As such, they see the price of gold reaching a new all-time high in the next 6 to 9 months. Also, they expect it will reach $2,000 in the next three to five months. They wrote:
“Nominal gold prices have already posted fresh records in every other G-10 and major emerging market currency this year. It is only a matter of time for fresh highs in U.S. dollars.”
Citi and Standard Chartered are not the only analysts bullish in gold prices. Last week, we wrote of a hedge fund that expects the price of gold to rise to $5,000. Before that, we wrote about how Bank of America expects the gold price will jump to $3,000.
On the daily chart, we see that gold price has been in a strong upward trend in the past few months. The price is now near its 7-year high as shown below. Also, it is above the 50-day and 100-day exponential moving averages. It is also along the ascending channel shown in green.
Indeed, it has just moved from the lower side of the channel. Therefore, the XAUUSD pair is likely to continue rising as bulls target the next resistance at $1,900.
On the flip side, a move below $1750 will invalidate this trend. This price is along the 50-day EMA and is also an important psychological level.