Gold extends four-day winning run, hits new 7.5-year high

Gold jumps to the highest level since November 2012.
Fed's Powell again rules out negative rates but says more stimulus may be required.
Renewed US-China tensions may be drawing bids for the yellow metal.

Omkar Godbole FXStreet Contributor

Gold jumped to a fresh 7.5-year high on Monday even though Federal Reserve's President Jerome Powell ruled out negative rates and stock futures gained altitude.

The yellow metal rose to $1,760 per ounce during the Asian trading hours to hit the highest level since November 2012, having eked out gains in each of the preceding four trading days.

Powell rules out negative rates

The central bank remains averse to using negative interest rates to respond to the economic impact of the coronavirus pandemic, Federal Reserve's President Jerome Powell told CBS during a 60-minute interview held over the weekend.

Even so, gold, a zero-yielding safe-haven metal, rose to multi-month highs, possibly due to renewed friction between the US and China over the coronavirus outbreak. The Trump administration stepped up its anti-China rhetoric over the weekend, with a top aide suggesting Beijing sent airline passengers to spread the infection worldwide.

Also, Powell told CBS that both the central bank and Congress would have to do more to help the economy absorb the shock arising from the virus outbreak.

Markets began pricing negative rates earlier this month with President Trump calling them a "gift" enjoyed by other nations. Powell, however, dashed hopes for negative rates on Wednesday. Bank of England Governor Andrew Bailey and Bank of Japan Governor Haruhiko Kuroda on Thursday suggested that their focus is on bond purchases and other lending programs to keep borrowing costs low.

However, looking at the rally in gold, it appears as though investors are convinced that the Fed and other major central banks would eventually cut rates to the negative territory. The Reserve Bank of New Zealand opened the doors to sub-zero rates last week. The European Central Bank, the Swiss National Bank, and the Bank of Japan are already running a negative interest rate policy.

At press time, gold is trading at $1,756 per ounce, representing at 0.90% gain on the day. Meanwhile, the dollar index, which tracks the value of the greenback (gold's biggest nemesis) against majors, is sidelined near 100.34.

Technical levels

1. R3 1776.25
2. R2 1764.03
3. R1 1753.12
PP 1740.9
1. S1 1729.99
2. S2 1717.77
3. S3 1706.86

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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