Gold in the balance of COVID-19 waves of global resurgence

Gold is currently trading at $1,684.28, -1.55% having travelled between a high of $1,721.94 to a low of $1,682.07. The pressure is on as market anxiety over COVID-19 started to dissipate in recent days on the notion that nations and some US states will be getting business back to work. 

The risk profile in financial and commodity markets has taken a turn for the better of late and gold is suffering as a consequence. The precious metal has been unable to get above the 1750s and bulls have run out of steam. 

However, the COVID-19 situation is fluid and it is no to say that we are anywhere near to being out of the woods yet for it now appears likely that some places will experience a local resurgence as restrictions are lifted and economies reopen. For example, Singapore has seen a resurgence mainly from imported cases, which have led to local transmission; this suggests that restrictions on international travel may continue. 

A volatile time ahead for gold

In the US, heavy-equipment manufacturers such as Boeing have resumed production and some states have rolled out aggressive reopening plans despite he nationwide concerns that there is not enough testing yet to keep the coronavirus from rebounding. Indeed, Europe’s experience in relaxing restrictions, and the most successful approaches there, will probably inform the approaches deployed in the United States at this juncture.

We can bet that anytime we have another scare, gold will be an attractive safe haven for nervous investors. So, despite the flattening of the curve and the recent calming effect in markets with stocks making a comeback (S&P 500 meets a 61.8% Fibo of stock market rout), the months ahead will probably still be quite volatile for gold.

"While a sharp recovery in equity prices could constrain safe-haven demand for gold, ultimately, we argue that the monetary impulse will remain the primary driver of investment demand for the yellow metal," analysts at TD Securities argued.

"The balance of risks remains to the upside for gold. That being said, while we expect some marginal CTA selling flow in response to the deteriorating momentum, we don't expect any significant changes in trend follower positioning."

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