Gold turned below $1,700 – Bears in control

Countries from Japan and New Zealand, to France and the UK, are loosening lockdown rules, though South Korea today warned of a second wave of infections while cases in the US appear to be rising, and Wuhan in China reported five new Covid-19 cases, the highest since March 11.

Investors are mulling the latest easing measures amid fears of a second wave in China, but also on the concern over trade tensions. Over the weekend, another concern was raised which deteriorated the relations between the US and other Western nations, like Australia and China. While the US and China are so far taking a pragmatic stance on trade, tensions between the two economic superpowers remain tense, with the Trump administration ratcheting up its accusations against China about the origin of the coronavirus pandemic. Reports suggest that the White House is considering taking a number of measures against China, including the possibility of tariffs. Trump may be motivated for blaming China as he faces a presidential election in six months, but the fraying relations is more than just electoral politics. The US has been growing uneasy about China’s power in multilateral organisations, such as the World Health Organisation and World Bank, feeling a need to reassert itself. On the other hand China threatened to impose tariffs on barley imported from Australia, in the wake of the PM’s coronavirus comments in preceding weeks. This could be a response to the PM’s remarks, using anti-dumping measures from China as cover to impose the tariffs in retaliation.

Aside from geopolitics, there is also a risk that markets are pricing in a too optimistic view on the potential for a strong rebound. Most economies are unlikely to return to pre-pandemic normality until such time as there is a vaccine or a cure for the Covid-19 disease that the coronavirus causes.

In the FX market, Gold is in decline today, breaking below $1700 as sellers regain the intraday control of the commodity. This was a result of USD pick up as safe haven demand, as equity markets turned lower during the European morning after most markets in Asia-Pacific rose, while commodity currencies more than gave back intraday gains. The narrow trade-weighted USD index posted a four-day high at 100.09.

That said, gold price action is still within the realms of the narrowing wedge in the medium term as it remains within the 1-month range.

Gold is currently traded below the mid-Bollinger band at 1,698, reversing more than 60% of last week’s gains. The precious metal seems to be lacking direction in the daily chart, while intraday it has turned negative, below all fast MAs and below its PP at 1709.

Momentum indicators meanwhile are also negatively configured, with MACD lines turning below zero and RSI flattened to 37, also suggesting the potential of consolidation.  Yet, the technical oscillators and the fact that the 5-period EMA is below 10- and 20-period EMA appears to support a neutral-to-bearish picture for now. The next Support levels to be watched are 1696 and 1688, while on the flipside, Resistance can be found at 1703 (50% Fib. level) and the 1710 (PP and latest up fractal).