Gold futures were trading at near break-even levels to slightly higher on August 4 as the US dollar regained some strength. The stronger dollar capped the precious metal’s gains for a second session as it tries to surge above the $2,000 level.
The sustained rally in the gold markets cam as governments around the world flooded their economies with financial aid to fight the coronavirus crisis. Investors now bet that the uptrend for gold will continue as the dollar weakens; and the interest rates remain around 0% in most parts of the world.
BofA Global Research analysts predict that bullion gold will rise by 50% in the next 18 months to reach $3,000 per ounce. For now, the precious metal is benefiting from the health crisis environment. Metals strategist Michael Widmer, commented in an August 3 research note:
“When you’re looking at what [DXY, 10 year real yields] levels we would need to see gold at $2500 per ounce, it is combinations like the DXY at 90 and real rates at minus 2.”
Widmer cited a July 30 call with clients. In the case of bond yields and the ticker symbol for the ICE U.S. Dollar Index DXY, 0.33%, or DXY, he stated:
“That will take gold to $2500. The DXY at 85 and real rates at minus 1.75 will also take you to $2500. DXY at 80 and real rates at minus 1.5 also take it to $2500 an ounce.”
DXY is a gauge of the dollar against six major currencies.
On August 4, 2020, the DXY stood at 93.615, up 0.3% offering some headwind for precious metals priced in the currency. Whenever the dollar gains some strength, the assets pegged to the currency tend to weaken since the dollar makes those commodities more expensive for the overseas buyers.
In the meantime, the 10-year Treasury note yield TMUBMUSD10Y, 0.515% was hovering at around 0.54%. December gold GCZ20, 0.70% GC00, 0.70% was up 60 cents which translates to less than 0.1% on August 4 valued at $1,986.90 an ounce, according to FactSet data.
For now, investors are closely watching the Federal Reserve determine whether there are fresh signs of monetary stimulus. Congressional lawmakers are debating an additional coronavirus-related fiscal package in the United States. That might catalyze the next move in gold as explained by the chief analyst at ActivTrades; Carlo Alberto De Casa, in a note:
“It is clear the resistance level of $2,000 is a strong threshold for the price; and significant volumes are placed there. Any news regarding new monetary stimulus from the US Federal Reserve; could trigger gold to break up the resistance level of $2,000.”
On the other hand, September silver SIU20, 1.90%, shed 8 cents which translates to 0.3%; to trade at around $24.34 an ounce after the commodity surged by 1% a day ago. Elsewhere looking at Comex, September copper HGU20, -0.91% lost 0.7% to reach $2,892 a pound. October platinum PLV20, 1.78% gained 0.7% at $937.30 an ounce. On the flip side, September palladium PAU20, 0.60% gained 0.2% to reach $2,143.10 an ounce.