Gold on a bearish footing as markets wind in the panic

Gold is starting out the week on the same bearish footing as it left off last week and trading below a 61.8% Fibonacci retracement and into a high volume node. On a fundamental basis, the Federal Reserve's massive QE program and uncertainty pertaining to COVID-19, gold will likely be at attractive levels on dips. 

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At the time of writing, gold is trading at $1,676.90 having travelled between $1,690.20 and $1,675.10 the low after a 3% fall last week. Risk sentiment was on the up following US President Donald Trump and reports suggesting a potential coronavirus treatment and that the US businesses will get back to work soon. with plans to ease lockdown measures. 

Global data to support gold

However, while the good news is priced in, it leaves plenty of room for bad news and events and considering the circumstances, there is plenty of that to come. This week will start to show the economic impact of the lockdowns that commenced in the middle of March, reflected in the data that will start to come out. There will be US jobless claims, manufacturing and services data.

"In general, we expect the April data to be even weaker than the March data, as the sudden plunge due to social distancing generally did not start until around mid-March," analysts at TD Securities explained. "That pattern certainly came through in the NY and Philadelphia Fed surveys. We expect a similar pattern in the Markit data. In contrast, claims have probably peaked, albeit with the level still high." 

We will also see top tier data from other parts of the world, including the UK and Europe with expectations of terrible data to underpin the recessionary notion for the global economy supporting demand for precious metals. 

"The Fed's massive QE program and the fiscal impulse could see long-end rates rise during the recovery phase, but not without rising inflation expectations, which should keep real rates suppressed. In this context, we suspect that investment demand for gold will continue to rise as capital seeks shelter from a long-term environment in which real rates are negative," analysts at TD Securities argued. "Further, following the relentless 'dash-for-cash', gold's positioning remains far cleaner, and key triggers for CTA flow remain distant, suggesting the left tail for gold has now shrunk. Silver and platinum could see some marginal algo short-covering, but we don't expect any significant flows from trend followers."

Gold levels