Gold Price Forecast: Hunger for physical gold on the rise

• Demand for the bright metal likely to remain high amid a physical shortage.  
• The dollar may have eased, but has not lost its crown in this time of crisis.
• Spot gold has room to retest the multi-year high at $ 1,703.18 a troy ounce.

Demand for the greenback finally receded this past week, leading to a nice recovery in gold prices. Spot traded as high as $1,643.90 a troy ounce, level reaching on Thursday. Things keep moving fast, although not faster than the coronavirus spread. The number of total global cases has largely surpassed 500,000, while the number of cases in the US is now above those in China. The death toll continues to increase, particularly in Italy and Spain, the countries most hit by the pandemic. The UK comes behind as even UK PM Boris Johnson and Prince Charles got infected.

Beyond decreasing interest for the greenback, gold got backed by delivery issues tied to the operations shutdowns taking place all over the globe, leading to a shortage of physical gold supplies.

Counter-financial measures bringing relief

Meanwhile, the US Federal Reserve shocked markets on Monday, announcing it would buy an unlimited amount of Treasuries and mortgage-backed securities. The US Central Bank previously slashed rates by 150bps and announced a $700B asset-purchase program. It also established swap-lines with fifteen other central banks, all measures set to grant liquidity through the crisis.

Also, the US Senate passed this Wednesday a massive $2T relief package, meant to cope with the effects of the coronavirus pandemic on the economy. The Senate approved the bill in a unanimous 96-0 vote. The House is expected to approve it this Friday, although it could be delayed to the weekend.

Back to the commodities’ sphere, crude oil prices edged lower towards multi-year lows, amid investors assessing the impact on the future demand of the current crisis. Oil prices’ decline puts a cap on gold’s bullish potential.

Unemployment skyrockets

Adding to dollar’s woes, unemployment claims in the US jumped to 3.28 million in the week ended March 20. Many US states changed the rules on who is entitled to ask for it, amid the coronavirus crisis forcing workers to stay at home. The outrageous number has a limited impact on markets, as Wall Street kept rallying afterwards. Despite losing some ground on Friday, equities are ending the week with substantial gains.

Markit will release the final version of its March Manufacturing PMI next Wednesday, while the US will publish the official ISM index, much more relevant. At this point, it is expected at 44 from 50.1 previously. Next Friday, the country will release the March Nonfarm Payroll report. The US economy is expected to have lost 293K jobs, while the unemployment rate is seen up to 4.0%. The numbers seem too optimistic.

Given the uncertainty, and despite demand for the greenback may return, speculative interest will likely conserve its bright metal’s longs. Hunger for physical gold would likely increase, keeping it underpinned.

Spot Gold Technical Outlook

After plummeting in the last two weeks, the metal has recovered nicely, now above the 61.8% retracement os such decline at 1,606.60. In the weekly chart, spot gold has recovered above a bullish 20 SMA, while technical indicators have U-turned, the Momentum bouncing from its mid-line and the RSI recovering into positive ground.

In the daily chart, the metal has also recovered above its 20 SMA which provided dynamic support throughout the second half of the week, located in the 1,590.00 area. Technical indicators in the mentioned chart have erased oversold conditions, but lost directional strength after reaching neutral readings.

The weekly high at 1,643.90 is the immediate resistance ahead of 1,660. Beyond this last, spot has room to re-test the multi-year high at 1,703.18. The mentioned Fibonacci level provides support ahead of the daily 20 SMA. Below this last, the bearish case will be stronger, with the 1,500 level at sight.  

Gold Sentiment Poll

The FXStreet Forecast Poll shows that spot’s recovery may have stalled, as it is seen bearish-to-neutral in the next few weeks, although recovering ground in the three-month perspective. In the worst case, gold is seen on average at 1,607and that’s for the upcoming week.

As for the Overview chart, moving averages have suffered sharp U-turns, with the largest accumulations of possible targets above the current level, which somehow indicates that investors are still willing to buy gold.

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