Daily Brief Aug 19 – Everything You Need to Know About Gold
Arslan Butt • 3 min read
Good morning traders,
The GOLD prices closed at 2,001.68, after placing a high of 2,015.67 and a low of 1,976.05. Overall, the movement of the yellow metal remained bullish throughout the day. On Tuesday, gold rose by about 1%, claiming the $ 2,000 per ounce level, as the dollar fell to a 2-year low and the US Treasury yields declined. Investors are awaiting the minutes of the latest meeting of the US Federal Reserve.
The US Treasury Yield on the 10-year note was down by 2.8% on the day, while the US Dollar Index also slumped for the second straight day, reaching 92.11, the lowest level since May. The Federal Reserve is scheduled to release the minutes of its July meeting on Wednesday; it is expected that the minutes will be more dovish for the US dollar.
The Federal Open Market Committee (FOMC) has vowed to keep US rates close to zero, until the US economy has recovered from the pandemic. Under its own unlimited balance sheet, the US central bank has allocated a few trillion dollars, aside from what Congress has budgeted, to lend to distressed businesses and credit markets.
Another statement from US Secretary State Steven Mnuchin on Tuesday, also helped gold prices on Tuesday, when he said that US President Donald Trump wanted to move forward with more economic aid, amid the coronavirus pandemic. On the US-China front, the trade finance provider, Stenn Group, has published figures stating that the ongoing US-China trade war and the delays in talks could cost small and medium-sized businesses as much as $ 750 billion.
The figures came in as US President Donald Trump banned the Chinese apps TikTok and WeChat, along with imposing a further restriction on the telecom group Huawei, as was announced yesterday. These economic tensions between both nations are unlikely to stop anytime soon.
According to Stenn’s figures, UK firms have reported a bigger hit to their bottom lines than their US counterparts. British firms put the cost at $ 3.9M on average, whereas the US came in at $ 3.7M. This weighed on the market sentiment, raising gold prices on Tuesday.
On the other hand, the US and China have postponed their phase-one deal review, due to scheduling conflicts and the need to allow China more time to buy US exports, in line with the trade agreement.
The deal requires China to increase its purchases of US farm and manufactured products, energy and services by $ 200 billion over the next two years. China’s total imports of products from the US totaled $ 40.2 billion; this means China’s compliance was less than 50%.
However, since the lockdown restrictions were relaxed, China has increased its purchases, and officials from the Trump administration have indicated that they are satisfied with the pace of the deal, and that they have no plans to abandon the agreement. It appears that the US and China want the phase-one deal to be successful, and this has eased some of the tension on the market, capping further gains in gold prices.
On the vaccine front, the Prime Minister of Australia, Scott Morrison, said that Australia had secured access to a promising vaccine, which means that, if clinical trials are successful, the deal with AstraZeneca will secure “early access for every Australian.”
Earlier this month, the state of Victoria declared a state of disaster and imposed strict lockdown measures. Victoria still has more than 7,000 active cases, and it remains Australia’s greatest concern. The move triggered the risk sentiment, weighing on increasing gold prices.
On the data front, at 01:00 GMT, the TIC Long-Term Purchases from the US for June rose to 113.0B, compared to the anticipated 108.0B, lending support to the US dollar and putting pressure on gold prices in the early Asian session. At 17:30 GMT, the Building Permits data from the US for July showed a rise to 1.50M, in contrast to the projected 1.33M, which supported the US dollar. In July, the Housing Starts also rose to 1.50M compared to the expected 1.23M, also supporting the US dollar, which eventually limited further gains in the yellow metal.
Daily Technical Levels
Pivot point: 1,979.53
The technical side of gold is mostly the same, as the metal consolidates in a trading range of 2,014 – 1,980. The bullish sentiment still seems weaker, ahead of FOMC meeting minutes today, and it may lead gold prices lower, to the 1,981 level. On the lower side, gold may find support at the 1,965 trading level. A slight bearish correction could be seen, until 1,985 or even 1,981, before gold shows further buying. Let’s keep an eye on the 1,985 level, as above this, more buying could be seen in gold. Good luck!