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(Kitco News) Gold is on a mission: reaching its all-time high of $ 1,920. And in addition to looking like a highly likely outcome for next week, analysts say there is little to prevent the precious metal from rising further and closer to $ 2,000 an ounce.
The growing tensions between the US and China, the weakness of the US dollar, the fall in yields, the additional fiscal stimulus and the escalation of the COVID-19 cases have been some of the main drivers of the massive movement of gold this week.
At time of writing, August Comex gold futures were trading at $ 1,899.80, an increase of 0.52% on the day. In just five trading days, gold earned more than $ 80 and saw its seventh consecutive weekly gain.
In terms of what’s next for gold, most analysts Kitco News spoke to on Friday said the uptrend remains unchanged and more price gains are likely. The main reason behind such a bullish outlook is that the gold supporters are here to stay … for now.
“I do not see a quick solution to the growing tensions between the United States and China, I do not see a quick solution to the problem of the pandemic, and I do not see a quick solution to global concerns that come from further stimulation and increased debt,” RBC Wealth Management Managing Director George Gero told Kitco News. “The trend is my friend, according to gold traders. They will continue to be downside buyers.”
Reaching higher levels is the outlook for both gold and silver, Gero said.
Tensions between the United States and China: ‘the American dollar on its knees’
Tensions between the United States and China saw another escalation on Friday when China retaliated for the closure of the Houston consulate by ordering the United States to close its consulate in the city of Chengdu.
“The United States measure seriously violated international law, the basic rules of international relations and the terms of the China-United States Consular Convention. It seriously damaged relations between China and the United States,” said the Chinese Foreign Ministry. it’s a statement.
This surge in tensions, coupled with a weaker US dollar, is creating a very favorable gold environment for traders.
“The US dollar is almost on its knees, the political tensions between the United States and China are at their highest point. And the Middle East is going through a bad time right now. Everything points to a much higher demand for safe haven,” he said. Afshin Nabavi, Senior Vice President of Precious Metals Trader MKS SA.
The weaker US dollar is also helping international buyers acquire gold and silver, which in turn increases the price, highlighting Gero.
BREAKING: # The price of gold exceeds $ 1,900 to reach another high of almost nine years. Next stop for the bulls: The all-time high of $ 1,920.70, based on Comex’s near futures. Maybe today. August gold rose $ 11.70 to $ 1,902.00 | #kitconews | pic.twitter.com/q9bAHWACTq
– Kitco NEWS (@KitcoNewsNOW) July 24, 2020
Stimulus from the EU and the US
All the additional fiscal stimulus that is being introduced around the world has been clearing the highest path for gold.
“One of the main supporting factors for gold is that we are seeing a lot of monetary and fiscal stimulus. Fiscal spending will require more financing and more monetary support,” said SIA Wealth Management chief market strategist Colin Cieszynski.
EU leaders have reached a massive stimulus deal this week in the form of a € 750 billion ($ 857.33 billion) recovery fund that is tied to the € 1.1 trillion budget for 2021-2027.
Attention is now shifting to the United States, which is likely to announce another tax package next week. “US lawmakers are also trying to finalize the Phase 4 fiscal stimulus plan to avoid the coming cliff at the end of the month. Republicans delayed publication of the text until next week, another potential blow to sentiment, as the clock is ticking. ” said TD Securities global director of FX strategy Mark McCormick.
Road to $ 2,000
According to analysts, if gold breaks above $ 1,920 next week, it could point to a rounder number like the $ 2,000 per ounce level.
“We are approaching $ 1,920, which is the all-time high since 2011. If we break that, we should see more buying than profit. Unless there is a full reversal and everything is back to normal, we continue to head for $ 2,000 in gold “Nabavi said.
Cieszynski agreed: “We are approaching all-time highs. If gold exceeds $ 1,920, the $ 2,000 level is a surprising distance. Overall, the trend is still positive,” he said.
The yellow metal is less than $ 25 from the all-time high, said Han Tan, FXTM market analyst, noting that “at this rate, setting a new all-time high seems like an inevitable conclusion.”
In the current environment, gold prices could easily reach $ 2,000; it’s just a matter of when, says Marc Chandler of Bannockburn Global Forex https://t.co/xVjoQTJi2Y@marcmakingsense @neils_C #gold #silver #KitcoNews
– Kitco NEWS (@KitcoNewsNOW) July 22, 2020
Beware of profit taking
In addition to all this bullish sentiment, some analysts warn of a possible pullback in prices as many traders are likely to pull substantial gains off the table.
“For next week, I’m a bit of a bearish. I think because we hit these highs recently, the market needs to be corrected. It’s a great opportunity to take profit. But because the rally has been so strong and so fast, the floor for gold could be as low as $ 1,800 or less. We still didn’t have time to consolidate, “said Everett Millman, precious metals expert at Gainesville Coins.
Commodity strategists at TD Securities also advise removing earnings from the table at $ 1,890 an ounce.
“While we continue to expect higher gold prices to move above $ 2,000 in territory and lower real rates in the longer term, we chose to take profit to protect ourselves against a short-term adverse shock that, for example, could drag inflation expectations at a faster rate than nominal rates, and we will seek to tactically add to our gold in the future in any significant lower consolidation, “the strategists wrote Thursday.
Data to Watch: Fed, US Second Quarter GDP.
The Federal Reserve interest rate decision on Wednesday will be carefully watched by analysts and investors alike. No rate changes are expected.
“The economic outlook remains uncertain, so they are likely to retain a cautious tone and be willing to do more in the future if necessary. They may also indicate a shift in their forward orientation with a tolerance to exceed inflation by 2 Target%: A possible key change in your strategy starting in September, “said ING International Chief Economist James Knightley.
Another major post next week will be preliminary US second quarter GDP data, scheduled for Thursday. The market consensus forecast is being set to see a 35% decrease.
Other key macro releases next week include US durable goods on Monday, CB consumer confidence on Tuesday, pending US home sales on Wednesday, initial US jobless claims. Thursday and US PCE Price Index data on Friday.
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