Gold Price Analysis: Remains under pressure below $1550 after central banks surprise
|- Global co-ordinated moves to counter pandemic in the spotlight with Fed, RBNZ in action off-late.
- Fed announced a surprise rate cut during the weekend in addition to $700 billion QE.
- RBNZ slashed benchmark interest rates by 0.75%.
- Coronavirus woes prevail with increasing death toll and rising cases in the US, Europe mainly.
Gold declines to $1,549 after the Fed Chair’s speech during the early Asian session on Monday. The yellow metal initially benefited from the surprise rate cuts from the RBNZ and the Fed.
The Fed Chair speaks after the US central bank surprised global markets with another rate cut in the month, to 0.25%, together with $700 billion worth of Quantitative Easing (QE).
Earlier, the RBNZ finally joined the league of global central bankers to announce high sized rate cuts. The New Zealand central bank slashed benchmark interest rate by 0.75 basis points (bps) to 0.25%. Further, the RBNZ also delayed the start of new capital requirements by 12 months. Even so, it mentioned holding the rate unchanged for at least 12 more months. Additionally, the RBNZ Governor Adrian Orr also turned down the calls for negative interest rates, despite terming the virus impact as having a medium-term length, during his latest appearance.
After a surprise rate cut and re-introduction of the QE, the US dollar registered broad weakness, which in turn helps the bullion to rise from $1,530 to $1,576 during the initial tick-up on the Asian open. However, the yellow metal seems to fade its strength afterward as investors seem to cheer the global co-ordinated moves to counter the pandemic.
However, the risk-tone remains heavy as the US stock futures plummet on the surprise moves by the Fed and RBNZ. It should also be noted that the rising grip of the coronavirus also keeps the investors worried.
Concerning the coronavirus (COVID-19), numbers are on fire in Italy and Spain while Asian countries, like India, have also registered cases off-late. As a result, the risk-tone remains under pressure despite the latest reset.
Technical Analysis
FXStreet analysis Ross J Burland cites the yellow metal’s U-turn from 200-DMA as a trigger to witness a pullback towards a 38.2% Fibonacci retracement level.
The return of risk appetite was adverse to gold prices, suffering a flight to cash to pay-up for margin calls mid-week. On Friday, the nail in the coffin came from US President Donald Trump declaring a national emergency and allowing more than $40 billion of FEMA funds to deal with the COVID crisis. The move sent stocks much higher and US treasuries lower, pressuring yields and the US higher, subsequently taking down gold prices to a weekly support line. Gold reverted to the levels seen during the last bout of liquidity selling in late February, around $1,560/oz and then dropped to a low of $1,504.34/oz (just above the 200-DMA, $1,497) as investors sold winners to generate liquidity and cover losses.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.